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March 16, 2009 – Comments (4)

This morning, as always, I opened up the official Magic Formula Investing (MFI) site and was greeted by a very unfamiliar design! The official site had been basically the same since it was launched in 2006, but this re-design changes things dramatically. Looks and layout aside (the site looks much nicer now), below are each of the major changes, as well as some commentary on each:

Different Available Criteria for Screener.

In the past, the MFI screener was very straightforward. You could select any maximum market cap between $50 million and $2 billion, and either the top 25, 50, or 100 stocks. The new screener has slightly different criteria. First of all, now you have a wider range of available market caps, between $50 million and now up to $5 billion. However, now you can only select between having the screen show you the top 30 or top 50 stocks. My feelings on the changes here are mixed. I like that the market cap limit now goes up to $5 billion... even $2 billion dollar stocks are considered "small cap" by some. However, I'm not sure why the designers felt the number of stocks should be capped at 50. After reading through the new materials, there seems to be no justification for the change. In all, it's not a major problem but an interesting decision nonetheless.

Much More From Greenblatt Himself.

The original design seemed disconnected from the "godfather" of MFI, Joel Greenblatt, but the new site features him prominently... as it should! Joel now has his own column on the MFI site, a video of him explaining the Magic Formula strategy, as well as a list of his favorite books and websites.

The Real Motive Behind the Re-Design.

Spend a little time on the site and it's obvious what the real motive behind the re-design is to push those interested in MFI towards Greenblatt's new venture with Formula Trading. There is little concrete data right now behind what Formula Trading is really going to be. Per Greenblatt's initial post, it will provide a brokerage service for MFI investors, where you can have Formula Trading automatically implement the Magic Formula for you (automagically buying MFI stocks and selling at the appropriate times), or use integrated tools to locate MFI stocks you are interested in. From the lists, you can quickly buy a number of choices, or sell a number of choices. The FAQ seems to indicate that Formula Trading will deal with the potential problem of high commission fees, although the minimum balance is $25,000. MagicDiligence will have more information as it becomes available. The MFI site indicates the service will be available in "the spring".

So what does all this mean, if anything, for MagicDiligence? Well, it disturbs the addressable screens MD has used for Top Buy consideration. Now, instead of the top 100 stocks over $50 million market cap and top 50 stocks over $2 billion, MD will now look at the top 50 over $50 million and the top 30 over $3 billion. Also, it will take a few days to adjust our MFI recording software to deal with the new site, so the current list of stocks in and out of the screen will be out of date for most of this week. Other than that, the official site re-design does not really affect us that much. MagicDiligence plans to continue offering high quality reviews of MFI stocks and recommendations on the truly great companies. We will also have more on Formula Trading, including a possible review, as that service evolves.

Steve owns no position in any stocks discussed in this article.

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