Hello friends,
I trust all my readers are staying safe, practicing social distancing and wearing masks!
Check out my latest update:
Note my latest MF stock, chosen using my new random MF stock picker: Points International (PCOM).
My MF Portfolio has lost thousands since early 2017, while the S&P 500 Index has risen nearly 35%.
How are you keeping track of when you buy and need to sale the stocks?
Hi Leivas,
My brokerage account has a record of all buy and sell transactions, so I sort on date, which makes it easy to determine when I need to buy and sell, which I do following the guidance described in The Little Book that Beats the Market. Stocks that lost money are held just under a year; stocks that gained money are held just over a year.
andrew
Andrew,
Thank you for posting your experiences online. I’m seriously considering following the MF myself. I have a few questions on how you are executing your experiment.
A) Did you purchase all 30 stocks on the same date or did you spread them out timewise? Any thoughts on which months would might be better than others for purchases? Or maybe I’m overthinking things.
B) Apparently the company market cap size has a large impact on volatility. What minimum size are you using to select your stocks? Are you seeing any trends based on market cap size?
I wish you success with the remainder of the experiment.
Hello Alvaro,
Thanks for reading. I bought the stocks over a couple of months. It might be best to spread out your purchases over some time but I don’t think one month is better than any other. I use the minimum market cap ($50 million) because that’s supposedly what Greenblatt used in his study. I believe Greenblatt gives some data in The Little Book that Beats the Market to support the idea that using companies with greater minimum market caps will decrease volatility but also decreases total return.
Take care,
andrew
Hi Andrew! I found your page from a comment on my YouTube channel. I’m also using the magic formula investing approach, but I just started last month. Have you ever considered making YouTube videos for your updates? It’s a popular keyword even for small channels.
Question: Why did you buy just one MF stock during this period? Based on how you set up your portfolio, I figured you just sell the whole lot and buy replacements once per year. And do you buy all your picks at random? That random MF stock picker is cool!
Cheers,
Brad
Hello Brad,
I only bought one MF stock during this period because I had one stock (ABBV) that had just hit a one year anniversary. My other stocks are clustered between late December and early February, but that “lone” one resulted from a merger of another MF stock that I described in this post. This will happen to you too Brad, if you follow the strategy long enough (or own a number of stocks in any portfolio long enough). There is bound to be some merger that results in an acquiring company just paying cash for all your stock – usually there’s nothing you can do about it, but sometimes the action is profitable as it was in this case. This is also why you do have to check your 30 MF stocks for this kind of thing; you can’t just buy 30 stocks and go to sleep for a year – there is some maintenance. Note that the Book is not strict about buying all stocks at once or spreading them out over the year. I don’t think it will matter in the long term, but I spread my initial purchases over a couple months just because it was convenient for me to do it that way at the time. Regarding your question on randomness: yes, I’m going to use that random picker from now on when I replace each stock. The whole idea of this strategy is that the data is supposed to drive your purchases and not your feelings toward particular stocks. When it was time for me to replace a stock or two and I had a list to choose from I found my feelings towards various stocks prejudicing my choice. I’m not sure if my choices resulted in a better or worse performance for my overall portfolio, but as you know from reading, the performance has been horrible! So I decided to remove as much of my “cherry picking” as possible from the equation, thus the random picker.
Regarding YouTube, thanks for the tip. I thought about doing something like that but maybe I’ll look into it more now.
Have fun and be careful,
andrew
Hey mate
To be honest your site is one of the few sites which I could find with some real life data and experience. Kudos to you for your effort and sharing your experience.
I have one query and sorry I might be wrong here. My understanding is that The Magic Formula system is based on buying equal dollar amounts of each stock.. However I can see that some of the stocks (eg GTX) carry almost half the weight.. Wouldn’t unequal weights skew the result?
Hi Nav,
Thanks a lot – that’s the whole reason I’m doing it and I’m starting to think I’m the first – and maybe the last.
I do buy equal amounts of each stock as much as possible. Please see my article on balancing your portfolio, which I should probably update, at least because when I wrote it, less than two years ago, all online brokers still charged fees. Anyway, you want each stock to be worth about 1/30 of your portfolio when you buy it. But within that year you own it the values of each stock will vary wildly. For example, Stamps.com has skyrocketed in value while Liberty Trip Advisors has plummeted. But when I sell each I’ll replace it with another Magic Formula stock worth as close as possible to 1/30 of my total portfolio value. Thanks for the question!
Thanks Andrew.. Appreciate your feedback. After posting the comment it occurred to me, what you just said. My bad.. haha.. However, thanks for taking out time and replying.
Good luck on your journey.
btw – you are not last. In all honesty, I got inspired by you and thought of this as a nice way to document findings and remain involved. I have also embarked on a similar journey. I got my first portfolio in July end. Let’s see. 🙂
Good luck to you Nav – I hope your experience is better than mine!
Hi! I just came across this blog in my preparations of starting a similar venture in the Scandinavian markets. It will be very interesting to see how your returns pan out over the coming years, and it’s good to see you’re not going up so easily. Good luck!
Thanks Jens. Good luck to you too!
andrew
man, really respect your sacrifice for proofing the magic formula wrong
you are a hero
Hi Guby,
If you’re serious you’re the first person to ever call me a hero unsarcastically!
The experiment continues so I haven’t proven it wrong. But based on my experience the strategy sure doesn’t look so good.
Thank you!
andrew
Hey Andrew
DOn’t give up mate. Remember, in the book it says.. There were periods when this strategy didn’t work. These periods could be as long as 4years.. Hang in there.. In the recent interview Joel did comment that in the recent years Value investing has taken a hi, however hopefully it might turnaround this year… 🙂
Thanks for the encouragement. I’m not giving up yet. I realize there will be long stretches of underperformance vs. the market. But I also believe it says in the book that they never found a 5 year period that did not beat the market – something like that. That’s why I picked 5 years as the minimum amount of time for my experiment.
Hello Andrew.
Just I want to say, that Guby it’s not the first person who call you “hero”, I did it before.
I have a blog in the net, where I talk about stock market and cuantitative approach to it, Last year I found your blog on the net, and I tested few Greenblatt strategies.
Here the article, if you curious: https://www.rankia.com/blog/guts-glory-and-markets/4141377-greenblatt-andrew
Sorry, it’s in Spanish, since I live in Spain. I said nothing to you then because you have no comments or dm available.
Cheers!!!
Thanks Monday. You make me want to study Spanish. I’ll have another update soon.