As I put fingertips to keys this beautiful Fall evening in the Fort Worth Command Center Dizzy Gillespie is spinning on my turntable, I’m sipping some rich hibiscus tea, and our President is in the hospital for Coronavirus. Despite that last fact markets have not yet gone into a tailspin – in fact the SPY (SPDR S&P 500 ETF) ended up for the week. The SPY is now trading at 333.84, which means it has gone up over 44% since I started this caper back in February of 2017 – and that doesn’t even include dividends since I’m too lazy to figure out how to include those, though I will if my Magic Formula portfolio value ever starts coming close to that rate of return.
Here’s the MF Portfolio:
I’ve lost 11.1% of my portfolio value, or over $6,700. Well, things could be a lot worse. Couldn’t they????
Andrew, thank you for keeping us up to date with your progress. Have you looked at changing any of your selection criteria, either focusing on qualifying companies with the highest revenue growth or stock momentum? Thanks
Hi Ken,
I have a lot of ideas that I use in my other investments but for this Magic Formula Portfolio I’m trying to follow the The Little Book that Beat the Market as closely as possible.
Thanks for reading,
andrew
Well, atleast one of your picks has in fact spiked up yesterday and I believe it will further. Its BIIB due to their new drug that has got FDA clearance. Good luck.
Yep, and I noticed Biogen is still coming up on the screener even with the big price increase.
Take care and thanks for reading!
andrew
Hi Andrew,
Thanks so much for sharing your journey with us! I been binge watching Joel Greenblatt’s interviews on YouTube and find some clips that might help with some of your questions.
1. Why Greenblatt have no MFI fund?
He actually had, the fund was called “formula investing” but he merged it into his long short fund “GINDX” since GINDX outperformed formula investing in both up and down markets.
Here are the talk and some timestamps:
The Little Book that Beats the Market | Joel Greenblatt | Talks at Google
https://www.youtube.com/watch?v=bZfPJCAVQg0
21:40 – 22:44 How “Formula Investing” Fund got started
27:54 – 28:50 Merging “Formula Investing” Fund into GINDX (100% Long with Long Short overlay)
26:26 – 27:05 Why GINDX is created (Making sure people can stick with his strategy)
31:48 – 34:00 Greenblatt’s investing philosophy: Buying quality company at a discount
54:36 – 55:13 MFI is a not trying very hard method using rough metrics that worked well
Greenblatt believe buying quality company at a discount is the way to invest.
He used to run hedge fund with concentrated portfolio that do that.
(https://www.youtube.com/watch?v=RberiI92oYw 2:55)
Magic Formula investing uses rough metrics to systematically implement his philosophy.
(Quality: Return on tangible capital, Cheap/Discount: Earnings Yield)
GINDX uses detailed proprietary valuation method to value firms in the S&P500 and go long or short accordingly. To make sure people can stick with GINDX, GINDX overlay its long short positions with the S&P500 index itself.
2. Why Cherry Picking is bad
https://www.youtube.com/watch?v=bZfPJCAVQg0
22:45- 23:54 Adding your two cents might cost you a lot
3. Market timing
I understand market timing is not a good thing to do, however we do need to think about are the current stock and bond market all extremely overvalued. Even the father of indexing himself times the market when Shiller PE hit 40 in 2000.
https://www.youtube.com/watch?v=k6ra5POdsYg 1:53-4:03 (Bogle timing the market)
https://www.multpl.com/shiller-pe (Shiller PE)
4. Is (Systematic) Value Investing Dead?
https://www.aqr.com/Insights/Perspectives/Is-Systematic-Value-Investing-Dead
(Cliff Asness is a systematic factor investor, his firm’s strategies are very similar to MFI in nature)
Thanks Jamie – I’ll take a look at those videos. At first glance they don’t inspire confidence because – like my portfolio – the GINDX has underperformed the S&P 500 Index over the past 5 years.
Joel said fund’s past 1,3,5 year performance have nothing to do with the next 1,3,5, but sadly people choose funds based on past returns instead of their investing process. However, the Market Can Remain Irrational Longer Than You Can Remain Solvent and S&P500 might be able to surpass valuations in 2000. Let’s wait and see in 5 years.
Looking forward to your next update. With the latest surge in value stocks, I am sure your performance will start to look more encouraging.
Thanks Toni! I will do one more update by the end of the year.
Hello, Andrew, great blog. I found this recent clip on youtube of Joel Greenblatt. It’s tough to conclude anything, since it’s such a short clip, but, even so, it sounds like he’s (maybe) given up both on (1) systematic investing like in “Little Book” and, to a certain extent (2) value metrics, like in “Little Book.”
Sounds like he’s going for more individual stock picks with growth at a reasonable price or something. But who knows, since it’s such a short clip.
Anyway, here it is, who knows: https://www.youtube.com/watch?v=Foy65XpwCi4
HI Marshall. Yikes – I better watch that! If he’s disavowing his own method what the heck am I doing following it?!!?
Thanks,
andrew