Stock Investing Blog - 2007 -

Dec 28, 2007, Investment Strategy for 2008

The recommended portfolio of Cornerstone Growth stocks and Magic Formula Investing stocks outperformed the market in 2007.

What strategy should be favored in 2008 ? Check our Investment Strategy for 2008 for more details.

Mar 27, 2007, Magic Formula Ranking with MSN

An observant reader highlighted that the PE/ROIC field in the Improved Magic Formula Investing screen returns 0.00 for all stocks.

He was then wondering whether the screen was correct.

The short answer is "Yes, MSN Deluxe Screener does rank properly despite the 0.00s".

For more details, read on:

In fact, it is just a displaying issue due to truncating.

Let's check the last company that pass the screen. A time of screening, I get:
Ticker CFK
EY=17.25
ROIC=43.27
Therefore PE/ROIC=1/(EY*ROIC)=1/(17.25*43.27)=0.00134

MSN just displays 2 decimals so will display 0.00

Since this is the last stock that pass the screen, the others have PE/ROIC <0.00134, which will also be truncated to 0.00.

Therefore, you will see 0.00 for all stocks.

Notes:
MSN used 17.25 and 43.27 for EY and ROIC but not 17.25% and 43.27%.
Had MSN used 17.25%, then PE/ROIC would have been 13.4 !

Now, you know that the "0.00s" are due to truncating but does MSN get it right in the ranking ?

The answer, as I said, is "Yes, MSN does rank properly despite all stocks showing PE/ROIC=0.00".

To convince yourself, rank with ROIC/PE = "High As Possible" which is obviously the same.
Compare these 2 screens:

ROIC/PE Ranking
PE/ROIC Ranking

The results are indeed the same confirming that MSN ranks properly despite the "0.00s".

I thought of timing the PE/ROIC formula by *100 to avoid the "0.00s" display but MSN does not accept it as it finds this too complex !

So why not just rank with ROIC/PE = "High As Possible" to avoid the 0.00s ?

You can definitely do that. I personaly prefer the ranking with PE/ROIC = "Low As Possible".
PE/ROIC reminds me of PE/Growth used in Growth At Reasonable Price (GARP) investing.

Mar 20, 2007, Improved Magic Formula Investing with MSN Deluxe Screener

In Magic Formula Investing, I proposed a screen to emulate Greenblatt's popular strategy with the MSN Deluxe Stock Screener.

This article improves the MSN's definitions of Return On Invested Capital and Earning Yield = 1/PE to better match Greenblatt's strategy.

Feb 19, 2007, Value Line Timeliness and the Presidential Cycle

Value Line updated their Timeliness performances by adding results for 2006.
Check Value Line's Ranking System Performance

Stocks with Timeliness #1 (w/o weekly rebalancing) failed to beat the market by returning just 5.7% compared to the S&P500's 13.6% and the Dow's 16.3% in 2006.

This confirms the poor track record of Value Line Timeliness Rank #1 in the year 2 of the 4 years presidential cycle: see Stock Picking and Calendar Market Timing

2007 is a year 3 of the election cycle and Value Line Timeliness should perform extremely well.

Jan 2, 2007, Investment Strategy for 2007

Here is an investment strategy for 2007 for mechanical investors.

In a nutshell: