As my readers know, I have been tracking magic formula investing since 2006. I did "give up on it" back in 2011, but rebooted after some analysis in 2012. Since then, I have done quite well.
A couple weeks ago, I did quite a bit more digging through all of the data I have gathered and believe more than ever that this approach works. The key/problem has been a small subset of stocks that have way underperformed (about 14% over time). I believe that being smart about picks can reduce the stinker impact from 14% to 5%, and that reduction makes this approach very satisfactory. People can read my analysis starting with (Bored & Beer-Infused Ramble). But the key is pretty obvious, you want stocks that have a higher predictability about their income and opportunities for reinvestment, like Jake's Bubble Gum Shop.
Upcoming 12/31 Tranche
So I have my 12/31/15 tranche about to hit anniversary date. It has been a slight underperformer as you can see from table below:
|12/31/15 Stocks||Start||Current||Dividend||Pct Gain||R3K Gain|
I have decided to materially increase my investment. I have been reducing my speculative plays and trading less (no buys since 11/15). I am going to probably increase funding by 30 to 50%. I will still calculate annualized IRRs as in table below so readers can see how MFI has done for me without the messiness of funds added.
|MFI Overall Gain||17.9%||24.5%||22.6%||-3.2%||15.4%|
|R3K Current Tranche||6.0%||13.6%||13.3%||8.9%||10.5%|
|R3K Overall Gain||19.7%||13.3%||12.1%||8.6%||13.4%|
Note this table just assumes $1,000,000 invested at very start over the four tranches.