Magic Formula Investing

I usually put in the purchases on the 12th to stay consistant but school kept me busy this month. No biggie. I took a look at how the Garcia Magic Fund is doing and the magic formula continues to outperform the S&P 500. Although the results are great, the portfolio has not been around to really feel about how it performs. One stock that has been tearing up the charts is Pacer International (PACR), which is up 63% since purchased at the beginning of the year. On the other hand, SOAP which was purchased in February has been the biggest loser. Anyway below are the purchases for June 2008.

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    Decided to place the orders for Monday.  As of today (5-10-08) 3 stocks in the portfolio have increased over 20%. PACR leading the way with a 40% return since inception. CITP was up over 50% on better than expect earnings but investors took profits. CITP has appreciated a respectable 35% since inception. Next,RAIL ended this week on a high note (up 9% on friday) after an analyst from Jefferies upgraded the stock. RAIL’s earnings weren’t the best due to the economy but that information had been priced in. [Read the rest of this entry...]

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Market down over 2% for the week. This is good as I get a better price on the 4th round of purchases. I will be a bit busy for the weekend so I will put the orders today and will be filled Monday morning. As previously posted, the magic formula stocks have performed well in this choppy market. [Read the rest of this entry...]

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    It has been a while since I took a peak at the stocks  in the magic formula portfolio. With another round of purchases coming in another day, I could not resist not looking at the portfolio, to my surprise the portfolio stock performance has been on a tear. [Read the rest of this entry...]

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Time to make a purchase for this month and the following to companies appear on the top 25 companies with a market cap of at least 50 million.

Heelys (4,HLYS) engages in the design, marketing, and distribution of action sports-inspired products for 6 to 14 year-old boys and girls.Heely’s currently has a pretax earnings yield of 214% and pretax return on capital greater than 100%. Pacer currently has a P/E of 5 with a P/E of 7.

King Pharmaceuticals (9,KG) develops, manufactures, markets, and sells branded prescription pharmaceutical products. King Pharmaceuticals currently has a pretax earnings yield of 54% and pretax return on capital greater than 100%. Pacer currently has a P/E of 12 with a P/E of 9.

Personally, I would not touch Heely’s with a 10 foot pole. The company is a one product company that has or at one point will reach its maximum. King Pharmceuticals on the other hand appears to be a solid company but has some doubts in its pipeline. If King can give some good news it will definately help the stock out.

On the other hand, the other companies have performed well considering the type of market we are having.PACr and RAIL are up 20% since inception. ACN and AVCI are flat since inceptiion. And finally, AIRV one of last months picks is down 17%.

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According to his latest 13F filing with the SEC, Joel Greenblatt 368,000 shares of Office Depot (ODP). Joel Greenblatt also sold out of American Express (AXP), Aeropostale (ARO), Autozone (AZO) and reduced his holdings in Wal-Mart (WMT).

Many well known value investors have been buying up shares of Office Depot and Staples. Along with Office Max, these 3 companies represent a small part of a fragmented industry (Office Supplies). The company it self is well run and definitely looks like a bargain. The stock is trading at historical low levels with a pre-tax earnings yield over 25%.

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The Magic Formula portfolio is relatively flat compared to the S&P 500. Having so much cash is really making it tough to get a real view of the magic formula performance. Thus, I will add 2 stocks each month in order to avoid having a cash hoard. Also, Chris made a great observation in the last post about portfolio policy. Each stock will now be sold after one year. [Read the rest of this entry...]

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Originally, I set the Garcia Magic Fund to purchase 3 stocks every 3 months with the stocks representing 2%. It was a mistake. A friend who read the page pointed out the fund will have 50 stocks. That amount of stocks is well above the 20-30 Joel Greenblatt recommends for establishing a magic formula portfolio. I increased the current positions to 4% and will purchase 2 stocks every 3 months. This will give me 25 stocks and will allow me to reach the desired amount quicker. [Read the rest of this entry...]

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In Mid-October, Reportonbusiness.com (ROB) set up a hypothetical magic formula $1 million portfolio. The site is selecting stocks with a market of at least $500 million. The results so far? Not Good. The portfolio is down 19% while the S&P 500 is down 10%. The time frame is fairly new and ROB.com acknowledges this by saying:

That isn’t nearly long enough (3 months) to judge the merit of any investment strategy. Value investing, in particular, takes a lot of patience. We’ll keep checking back and let you know how the portfolio is making out.

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What better way to kick off the new year than with my first round of stocks. All the trades will be placed in a fictitious mutual fund properly named the Garcia Value Fund. The screen used is randomly choosing 3 stocks from the top 25 results with a minimum market capitalization of 50 million. The average holding period will be 3 years (I hope). [Read the rest of this entry...]

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