Dark Liquidity - Magic Formula

Dark Liquidity

Stock Market Quantitative Investment Strategies

Strategies


	Moose Tracks


	Mebane Faber


	Single Country ETF


	Fidelity Select Sector


	SPDRs Sector


	Buy Don't Hold V2


	Buy Don't Hold V2 Signals


	OneQTrades


	DJ Golden Crossover


	Magic Formula


	Wishing Wealth GMI


	Seasonal Timing


	SuperSmart Portfolio


	Market Scout


	Long-Short-Timing

Magic Formula

Overview

This strategy is based on Joel Greenblatt's book "The little book that still Beats the Market". (Read it on your tablet for only $8.83. You don't need a Kindle - just download the Kindle software for your Android device here or your iPad here.)

The stock screener on the Magic Formula Website is used to select a portfolio of 30 stocks with a market cap of 50 million dollars. Note: Choosing more companies leads to greater diversification, and choosing larger companies generally leads to less volatility.

All stocks are held for approximately a one year period. If the amount you are investing represents a large percentage of your long-term investment portfolio, you may want to consider making multiple portfolio purchases over a 12 month period.

The system is designed to maximize your after-tax returns; therefore, you want any gains to become long-term by holding them for a year, and you want to sell any losses before the one year holding period is reached. (This does not matter if you are investing in a tax free account such as a retirement account).

Strategy Criteria

The Magic Formula seeks to identify “good” businesses selling at “bargain” prices. It uses two factors to rank stocks so that you can identify the best businesses selling at bargain prices.

The first factor identifies a good business as one that produces a high return on capital (ROC). Return on capital is calculated by dividing earnings before interest and taxes (EBIT) by the sum of net working capital and net fixed assets.

ROC = EBIT / (Net Working Capital + Net Fixed assets)

The second factor identifies businesses selling at bargain prices by examining earnings yield, which is basically the in inverse of the price earnings ratio (P/E). More specifically, earnings yield is defined as earnings before interest and taxes divided by enterprise value.

EY = EBIT/EV

Portfolio Changes

The complete list of stocks is purchased and held for a one year period after which they are all sold. This site will monitor multiple portfolios, each purchased at the start of each month.

Current Holdings

Check out the seeking alpha performance update article: seekingalpha.com/instablog/914029-dark-liquidity/241849-magic-formula-investing

The stocks shown in green font were added to the portfolio since the prior month.

Current Month Portfolio

Prior Month Portfolio