Magic Formula selection from a year ago

On 14-Aug-2014 I blogged an example Magic Formula portfolio consisting of 8 shares:

The current share prices are, in pence, for the record:
RNK 167, IRV 648, SPT 99, LSC 2450, KENZ, HRG 60, AZN 4202, BA 438

The percentage returns are:
RNK 3.7, IRV 21.1, SPT -27.7, LSC 44.1, KENZ 107.6, HRG -21.1, AZN 26.9, BA -2.4
Mean: 19.0%
1-year return for All-Share: -0.1%, for FTSE 250: 6.5%

So, the Magic Formula has beaten the indices by a large margin.

The picks a year before that showed what appeared to be a
market-beating return. I downplayed its outperformance, saying that it could be due to a “killer pick”. I might have been wrong to be so dismissive, though. As you can see from the performance of KENZ, “killer picks” do happen when you have a portoflio.

It was an interesting exercise, and to some extent validates the Magic Formula. It is difficult to know for sure, of course, as the selections have only been going for a comparatively short period. I think one has to accept the fact that one will have periods of outperformance, and periods of underperformance.

I wont be making a similar selection for the forthcoming year; otherwise I become too busy. I can barely keep pace with my other interests as it is. However, I am still making Magic Formula picks at my Stockopedia Fantasy Fund:
You can follow that if you are interested in Magic Formula picks. Over the past six months, my hand-selected picks have trounced the purely mechanical screen. Whether that proves anything, I’m unsure.

A pattern that I have seen with cheap micro-caps in my aforementioned blog post was that they can perform very badly. Some really bad stocks are selected. Setting a floor on the market cap, say £200m – maybe £100m – seems to improve the quality. There is such a lot of dross at the micro- end of the scale.

About mcturra2000

Computer programmer living in Scotland.
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