Use access key #2 to skip to page content.

MagicDiligence (< 20)

What is MagicDiligence?



January 15, 2008 – Comments (3)

This is a "hybrid" CAPS portfolio.  Stocks are chosen by the the following screen:

 1) Top 25-50 Magic Formula stock in it's market cap class.  I use two classes - 50m and above (all stocks), and 2b and above (mid/large caps).

 2) Pays a dividend.

 3) Passes reasonable due diligence by me.  Since many Magic Formula stocks are one-hit wonders, or due to one-time gains, or in difficult financial shape, I personally review each pick before adding it.  The idea is to get a list of the best Magic Formula stocks and throw out the junk.

I will hold each stock for at least one year.  If, at the end of the year, the stock still passes the above 3 tests, I will hold it another year.  If it does not, I'll end the pick.

The strategy is to try and use Greenblatt's Magic Formula as an initial screen for finding good companies at cheap prices.  Then, as outlined in his book, buy and hold the best of those ideas.

The reason for the dividend stipulation is to cut down on risk.  Dividend payers in general have more stable cash flows and are less likely to be one-hit wonders or one-time gain recipients. 

3 Comments – Post Your Own

#1) On January 15, 2008 at 9:57 AM, MagicDiligence (< 20) wrote:

Slight modification - I will add non dividend payers if the company is particularly financially strong.  Coach is a good example of this - 2b in cash and practically no debt.  The dividend stipulation is more for smaller companies.

Report this comment
#2) On January 28, 2008 at 10:32 AM, MagicDiligence (< 20) wrote:

Another slight modification - I'll also pull from the top 100 in the overall pool (over 50m market cap).  These stocks are still in the top percentile of Greenblatt's tiered return pool, and statistically should net the same returns as a top 50.  Sticking to just the top 50 over 2b however, as these large-caps performed slightly lower than the overall screen.

Report this comment
#3) On February 05, 2009 at 3:22 PM, SpartanMAC (< 20) wrote:

MagicDiligence - I do something similar; however, I use caps ratings, current ratio, debt level, and at least some shred of growth for my 'screened' Greenblatt picks.  It seems to be working also.  Great idea with your screen criteria.

Report this comment

Featured Broker Partners