| 2/17/2006 | 21.2% |
| 3/29/2006 | 13.0% |
| 4/7/2006 | 10.3% |
| 5/12/2006 | 20.4% |
| 5/31/2006 | 29.2% |
| 6/30/2006 | 22.4% |
| 7/31/2006 | 19.7% |
| 8/31/2006 | 13.0% |
| 9/28/2006 | 12.7% |
| 10/27/2006 | 10.3% |
| 11/29/2006 | -0.3% |
| 12/28/2006 | -6.9% |
| 1/26/2007 | -10.2% |
| 2/27/2007 | -3.7% |
| 3/26/2007 | -9.8% |
| 4/27/2007 | -10.9% |
| 5/29/2007 | -11.5% |
| 7/3/2007 | -30.0% |
| 7/30/2007 | -19.9% |
So you can see that new money put to work in 2007 was not exactly great timing. Of my total investment in MFI, 55% was in 2006 and 45% was in 2007. Now my calculations show that if you invested ALL of your money in 2006, you'd be sitting (on average) with a 9.4% gain.
Stop the Presses!
Wait, I did find a worksheet that shows how my initial investment into MFI was timed. Here it is:
| YYYYMM | Pct |
| 200602 | 10.4% |
| 200603 | 7.0% |
| 200604 | 7.1% |
| 200605 | 16.8% |
| 200606 | 9.6% |
| 200607 | 0.0% |
| 200608 | 0.0% |
| 200609 | 5.2% |
| 200610 | 0.0% |
| 200611 | 0.0% |
| 200612 | 0.0% |
| 200701 | 2.6% |
| 200702 | 4.3% |
| 200703 | 7.4% |
| 200704 | 3.7% |
| 200705 | 5.4% |
| 200706 | 17.6% |
| 200707 | 0.0% |
| 200708 | 0.0% |
| 200709 | 1.1% |
| 200710 | 0.0% |
| 200711 | 2.0% |
So, if you superimpose that pattern into MFI against the monthly tracking portfolios and assumed you went in with $100,000 total over 2006 and 2007 you would have (drum roll please): $98,335!
What does this mean? If you picked just "average" from the MFI lists and followed the rules exactly (expect that you took two years to get invested instead of one), you would be down a bit less than 2%. If you had fully invested evenly of 2006, you would have a bit over $109,000. Clearly, missing a chunk of a fine 2006 hurts.
All of this makes me feel a bit better. I am essentially in-between the two figures at $105,920. I know I have not followed the rules per se.
- I have bought stocks not on the list.
- I have not always bought equal shares.
- I have not always held for a year.
- I have held cash for some points
- I have held at times more than 25-30 stocks
- I have held at times less than 25-30 stocks.
I guess that is encouraging. Mathematically, I have always known that some deviations from the basic rules over time should not statistically make a big difference if you assume the stocks are randomly picked. And thus far, that has been the case. And to be honest, if not for the late September run in the Chinese stocks in my portfolio, I'd be closer to the $98,000 average.
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2 comments:
So would you recommend Magic Formula Investing to a new investor today given that his investing time table is 15-20 years?
I would recommend as a component of your portfolio. I would dial down the high expectations of returns in the book though. And I think it is more volatile than Greenblatt suggested over shorter horizons. But 15 to 20 years should be fine. Of course the website might not be here 10 years from now...
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