Kiplinger Review of Greenblatt's Magic Formula
"The second half of 2007 was rough for newly bought Magic Formula stocks, say members of Yahoo's Magic Formula message board. Some reported double-digit losses. Particularly hard hit were the smaller companies on the list. There's no way of knowing how many people gave up trusting "that stupid computer," but there is abundant evidence that dissatisfied Magic Formula followers are trying to improve on the formula.
Instead of investing in the 25 top-ranked stocks, Kiplinger's subscriber Marty Ams, of Westlake, Ohio, chooses his 25 at random from among the 50 top-ranked companies -- but only if he can find a recommendation for that stock from another source. On Yahoo, certified financial analyst George Peng suggested putting stop-loss orders on Magic Formula stocks to protect against declines. Fellow Yahooer David Williamson advocates doing your own research on each stock the Magic Formula spits out "to see which ones hold up." Ted Wu sells his big winners before a year is up and holds his big losers beyond a year. In early January, easily 90% of the messages on Yahoo's Magic Formula forum dealt with altering the system."