The next factor used in
the Magic Formula ranking is Earnings Yield (EY).
I've included a column in the spreadsheet with each company's
magic formula ranking.
Not exact matches
Figure 2.7 shows the performance of each decile
ranked according to the
Magic Formula and Quality and Price for the period 1964 to 2011.
The
Magic Formula diverges from Graham's strategy by exchanging for Graham's absolute price and quality measures (i.e. price - to - earnings ratio below 10, and debt - to - equity ratio below 50 percent) a
ranking system that seeks those stocks with the best combination of price and quality more akin to Buffett's value investing philosophy.
But there is no instant,
magic formula when it comes to
ranking on Amazon.
He also shows how buying the top 10 % of stocks in the market as
ranked by the
magic formula have outperformed the rest of the market and the returns of each successive group outpeform the lower groups.
The ERP5
ranking is our home - brewed ratio based on the
magic formula and ideas by the father of value investing and stock screening in general, Benjamin Graham.
Just know that you can retrieve the highest
ranked Magic Formula companies at www.magicformulainvesting.com.
The Profit and Value approach is similar to the
Magic Formula in that it
ranks stocks independently on «value» and «quality,» and then reranks on the combined
rankings.
The Greenblatt
Magic formula for instance
ranks companies based on ROC and Earnings yield and then sums up the 2
ranks.
In this post, I'm going to detail how I used the
Ranking feature of Portfolio123 to recreate the two major factors in the
Magic Formula.
The
Magic Formula uses EBIT / TEV as its price measure to
rank stocks.
Figure 2.7 shows the performance of each decile
ranked according to the
Magic Formula and Quality and Price for the period 1964 to 2011.
Joel Greenblatt's
Magic Formula takes a similar
ranking approach —
ranking stocks on EBIT / Enterprise Value and on return on capital.