Gentle reader, I have committed to following this strategy for five years, but so far I am losing!
Here is my Magic Formula portfolio just over a year after the beginning of this experiment:
My portfolio balance at the beginning of this journey was $60,052.40, meaning that so far the “Magic” Formula has lost me $2,212.54. But it’s cost me more than that. The SPY (S&P 500 ETF) was trading at $231.51 when I began; it’s now trading at $274.71. This means that if I just would have jammed this real-money portfolio in the SPY or a similar S&P 500 index fund I would have a return on my investment of about 18.7%. Instead, my return has been -3.7%.
I’m going to stay the course, but I’m not that optimistic about the success of this strategy going forward. The biggest concern I have right now is that, although this strategy is simple on the surface, it requires one to have faith not just in the principles of the strategy itself, but in the accuracy of the information on Joel Greenblatt’s Magic Formula Portfolio website. Yes, I’ve been doggedly using that site for my stock picks, trusting that Greenblatt’s minions have been ranking thousands of stocks in the NYSE, NASDAQ, and even over-the-counter stocks, according to the principles outlined in The Book. It’s a leap of faith that so far has not panned out. In the coming weeks I’m going to be writing more about more subtle facets of this strategy.
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