Magic Formula Investing

Using the Magic Formula for investing; based on "The Little Book that Beats the Market" I started a real life test with $50,000 of my own money. The blog described the process, thoughts, pain and ongoing updates on this adventure.

Thursday, August 17, 2006

MAY purchases for Magic Formula Investing -- random picks

My May purchases are really different from the original puchases -- so I keeping them seperate for now, but I will combine them eventually.

This time around I wanted to go completly random using the MFI stocks. I wanted to get updated quarterly numbers so was waiting for the MFI list to show all the 3/30 quarterly upates. That actually takes quite a while, usually until about May 20 or later. Of course I was getting a little anxious, so I bought on May 17 --- It was a downday for the markets, so I thought the timing was good (it was followed by 2 or 3 more downdays, which would have saved me quite a bit of money -- but you never know this stuff).

This time around I wanted to pick at random -- which is easier said than done. I used 100 mill market cap and 50 stocks from the MFi website. I kicked out the one's that I had already bought and the one's that had not posted earnings (there was one stock on there with Sept. as the last earnings date).

- That gave me a 41 stocks
- I plugged them into Yahoo finance which now updates realtime
- At a random time I copied all the current stock prices into an excel sheet and then I bought the shares where the first digit after the comma was a 2 or a 4. So if the price was 12.86, I did not buy -- if the price was 44.28, I bought.
- Why use such a strange stock picker -- I really wanted to avoid cherry picking this time around. And even looking at the names of many of these stocks, I would always be influenced (also because I have been reading and watching a lot of MFI blogs / message boards and many of the same stocks are being talked about)
- The other advantage was that it provided a random number on how many stocks to purchase - in this case it as the following 9 stocks:

CALL
DEBS
GMR
GSTL
INTX
NADX
PTEN
TOPT
TGIS

I just went and bought an equal $ amount of each -- never even checking anything about these companies. That takes A LOT OF FAITH !!!!!!!!!!!!!!!!

How is this May portfolio doing so far --( benchmarks are measured from May 17) ???
May MFI: -4.25 %
SP500: +2.1 %
Russ2000: -2.75%

So this one is a little behind the Russel and quite a bit behind the SP500. I had 2 stocks that just dropped 20-25% within the first 10 days of purchase and i have been behind ever since.

TGIS is such a tease of a stock -- I bought it at 11.42 -- it has been as low as 9 and as high as 16 in the last 2 month alone -- right now it's at 10 or so.

I got 3 shipping stocks -- 2 of which are paying a VERY high divident yield. That will be difficult to track in terms of portfolio return -- their yield is over 10%.

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