Here’s an article I found written on GuruFocus.com about Joel Greenblatt. It mentions the magic formula for those interested in learning more about that. I think I might have said this before but I really do recommend his new book “The Little Book that Beats the Market”.
Happy Learning!
http://www.gurufocus.com/news.php?id=802
Eric Schleien
zachary
teenmoney
josh4580
Carlton
Hi,
I believe the results of Greenblatts’ MF-screen won’t be that good in the coming years. This because of the (unexpected) rise of commodity prices in the last years. These have led to high ROIC’s and EY’s for these kind of companies, which make them likely candidates in the screening process.
Because of the lack of (durable) competitive advantages, their returns won’t be that good, and will drag down the returns of the whole MF-selection,
Hendrik Oude Nijhuis
http://www.magicformulastocks.com
then exclude those companies who derive their earnings from (or indirecty from) commodities. i mean, the man himself applies some post screening thought to his selections. it’s more fun this way too
)
By screening out the commodities stocks, you run the risk of dropping companies with continued high profitability if there is any unexpected lingering strength in commodities prices. I suspect a lot of the return from the magic formula is due to such surprises – strong earnings continuing longer than the market expects.
Hi, thank you for the replies!
I agree with Andy on this one. For my portfolio I don’t want to allocate money to make money only when some unexpected event will take place (an UNexpected rise in commodity prices). I call that speculating.
Success in investing,
Hendrik Oude Nijhuis
http://www.magicformulastocks.com
Only a handful of the selections that arises are commodity related and if 2 or 3 were picked, out of a selection of 30 stocks in total, and 1-2 of those failed, it wouldn’t be totally horrible.
PCU comes up as a selection and I am loathe to buy it for the reasons you mentioned – but I was unwilling when it traded in the share price range in the 60’s, and look where its gone now.
Now I just can’t justify paying that much for something I could have had much cheaper.