Hello Dear Readers and Happy Holidays. This is my last update before I start swapping my Magic Formula stocks, one by one, for another set of “good and cheap” stocks picked by our hero Joel Greenblatt. Here’s the latest snapshot of my portfolio:
Wow! I almost broke even! I started this noble experiment with just over $60K. A few years later – I’ve only lost a few hundred bucks. Thanks Joel! I would’ve done much better putting my money in an FDIC-insured bank account. But nothing ventured, nothing gained. Merry Christmas to all, and to all a good night!
Hi Andrew, could you set up a simple newsletter plugin so we get notified when you release a new blog post? I’m keen to sign up! 🙂
I might do this soon. Thanks!
In my opinion as a value investor who looks at a businesses fundamentals, the Magic Formula strategy makes perfect sense and is almost certain to outperform the S&P by a wide margin over a long time period of time (10-20 years). Joel Greenblatt said in a recent interview that he “sees a lot of froth in the market”. When the market corrects to a lower level, glamour stocks are likely to get crushed (think Tesla). There is no reason that the S&P 500 couldn’t drop significantly from these levels and that could be permanent. A magic formula portfolio will likely take a hit too, but the underlying value of the magic formula protects you since in the long run the market “gets it right” and will value the magic formula stocks at fair prices. Your index fund is buying stocks regardless of the price which isn’t how you would buy your groceries or anything else, on the other hand, the magic formula looks at the fundamentals for every public company in America and selects the best 30 for you to buy based on rough measures of value. It is a no brainer to stick with the Magic Formula for the long run.