5 Magic Formula Stocks I'm Buying (4th Batch) + Portfolio Results Update

[@Keelansteele001]

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[@6Jamesabbott]

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[@Keelansteele001]

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[@Keelansteele001]

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[@Keelansteele001]

+ 1 3 8 5 4 3 7 1 1 5 8

[@6Jamesabbott]

@@Keelansteele001 What’s your guarantee of sure profits? I mean there’s lots of factors in the market that could be risky and cause losses

[@mediumattempt9039]

0:00 Intro 0:28 Brad’s strategy 1:31 Filtering stocks 13:31 Picking stocks 20:11 Results of the portfolio 25:37 Outro

[@BradKaellner]

🙌

[@hadifakih5882]

Can not thank you enough for the great content you provide, you are amazing Brad !

[@BradKaellner]

Haha, thanks Hadi!

[@ccnbutter]

Thanks for sharing, time is our best friend. One thing I wanted to note, I have a general rule.I learned from someone is if the thing drops by 20% after I bought, I double up on the position if the conviction and the business is still the same. Also, wondering if you want to look into Terry Smith from Fundsmith fund. I watched his speech in Malta and he was quite amazing explaining what constitutes a good company and many other interesting points. He talks about the importance of ROIC, which I found super educational. Cheers!

[@BradKaellner]

That sounds like a good rule! Yes I've heard the name Terry Smith from a few folks now, will need to dive deeper!

[@JawadEssani]

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[@JackDuffley]

Back testing against the SP 500 in a paper account would be very interesting as well, making equal contributions on the same dates you added to this Magic Formula portfolio for fairness.

[@JessieOpportunityCostInvesting]

I did this in another comment :)

[@JackDuffley]

@@JessieOpportunityCostInvesting lol right on!! Always count on jessie for the most accurate return measures

[@BradKaellner]

Haha, Jessie is determined to hold me accountable ;)

[@JessieOpportunityCostInvesting]

@@BradKaellner yeeeeeah i can get carried away, sorry, but it's really because I appreciate what you stand for.

[@tomasjernelov1415]

Awesome Brad! So impressed with the work you put in for us.

[@BradKaellner]

So glad it's useful Tomas!

[@austintaylor8664]

Great strategy! Thanks for sharing the spreasheet too - awesome.

[@BradKaellner]

You got it my guy 👌

[@dh-uo4lt]

Nvidia and amd would be better than micron. They had good earnings today and still can't get it going

[@tibop4247]

Great video mate, Looking into investing using the formula, your approach does give some edge to it. Very good insight. Thanks.

[@Marco-mp1nr]

Hi Brad, thanks for sharing this! I saw you own Msgn as I did, recently the company announced the acquisition from msge, which is a very interesting company too, there is a recent writeup on VIC on msge which is prior to the acquisition communication. I actually agree with most on that writeup and I think that with the acquisition is also a more compelling company. The idea is simple, they are acquiring msgn for 1 bln and its intrinsic value is almost 2 bln, so creating 1 bln more value for their shareholders + the discrepancy between price and value already in and described in the writeup. If you want to remain a shareholder of the new entity you would like to consider selling msgn and buying msge because of the favorable fixed exchange ratio.

[@BradKaellner]

Interesting, thanks for the heads up!

[@phanbahadur70]

This is your new subscriber. Great 👍 job for great video Sir. I like your content and explanation style.

[@JessieOpportunityCostInvesting]

Portfolio Return vs SP500: BRAD: 57.62% IRR, 83.34% XIRR SP500: 28.56% IRR, 39.75% XIRR

[@JessieOpportunityCostInvesting]

I appreciate including the exact dates and spreadsheet Brad ;)

[@BradKaellner]

Haha I hope this keeps up!

[@FelipeSantos-xe9nn]

I really enjoy the content and your calm while explaining it!

[@BradKaellner]

Happy to do it Felipe!

[@itisimpossibleto]

Does anyone know how to see the historical companies chosen by the magic formula? (Not the just the most recent quarter on the website). It would be very helpful for my research.

[@BradKaellner]

I'm sure someone is tracking the top 30 or top 50 on a daily basis, but I'm not aware of a public resource

[@itisimpossibleto]

@@BradKaellner ya probably. I am finding it hard to do research on this but such is life.

[@drumsmith215]

Great video, thanks for sharing your process. I also appreciated all the references and acknowledgments of those who have influenced you.

[@bhailalpatel494]

Hi Brad I love your videos it is very informative and appropriate your work, I bought last two batches and it is a very good idea to see how magic formula works. Great job!!!!

[@BradKaellner]

Always nice to get a great start with a mechanical investing approach :)

[@juanobanji]

Do you have a video on how to calculate the Debt to Operating Income ratio? Doing some quick googling, the closest thing I'm able to find is Debt-Service Coverage Ratio, which seems to be different that what you're leveraging.

[@BradKaellner]

Do you have access to TIKR Terminal? I simply look up Net Debt and LTM Operating Income, then divide them.

[@ecineko1]

Hey Brad, this may be interesting to you. GILD comes out as one of the magic formula picks and has neither earnings yield nor high return on invested capital based on morningstar.

[@brenthumason9347]

Did you compare how your first 5 did compared to the original 50? It would be interesting to know how much your added filters helped.

[@ShigueS]

These are really helpful. Thank you for sharing your thought process!

[@BradKaellner]

You are so welcome!

[@DennyCrane72]

Great content and thanks for including the spreadsheet - would you consider adding a column for intrinsic value estimates?

[@BradKaellner]

It's a lot of work already with the filters I'm using... estimating intrinsic value would push it over the top. And I don't think pulling estimates from Morningstar or other services would add much value.

[@DennyCrane72]

@@BradKaellner Thanks for the reply!

[@markgray7808]

Hi Brad - The 10 year ROC stats you have taken from QuickFS do not correlate with those from GuruFocus where you took the ROC (Joel Greenblatt)stats. Clicking on the ROC Greenbatt tab on GuruFocus reveals the Med 10y ROC stats and variance from industry norms. For instance ABC Med 10Y ROIC (QuickFS) is 17.9%. GuruFocus summary page shows ROC Joel Greenblatt at -311.45% - if you tap on that it links through to the 10Y ROIC which is quite confusing as it lists the current ROC as -311.45% Med 10Y ROIC of 80.93 and then in blue above says that the current ROIC for the quarter ending March 2021 is 162.63%. What are you expected to believe?

[@bretttingey5623]

If you are not selling in one year and holding at least for 2 years, how are you deciding when to sell a stock?

[@BradKaellner]

Great question Brett! TBD. I have another year to figure it out 😉

[@4sandys]

Hi Brad, Why not make M1 finance portfolio pie?

[@erlinguroh]

Hey Brad, fantastic modification for the magic formula. You say operating income should be able to pay down net debt in 3 years. Didn't phil town check if free cash flow could pay down total debt in three years? Perhaps similar results will appear.

[@wiserhappierricher3147]

Did you also notice the insider ownership is very wrong on most big screeners like Yahoo Finance, Guru Focus. They both show about 1% for DISH stock vs 45% on SEC

[@BradKaellner]

Yes, insider ownership tends to elude screenings

[@rfm231]

Hi Brad! Your thoughts on Motley Fool Stock Advisor vs Magic Formula? Thank you!

[@BradKaellner]

I have not used the Motley Fool Stock Advisor, and I like Magic Formula because the price is right ;)

[@rfm231]

@@BradKaellner Last question. Can or should you put your Magic Formula investments in a Roth IRA?

[@Nuganics]

Wow doing a heap better than I thought :) I personally would put a higher weight on ROIC as you might hold for longer than reversion to the mean. I can't argue with the results tho :)

[@BradKaellner]

That's a fair point Tim!

[@grahamr939]

Is there an invite code for TIKR? Is there a link to other exchange stocks other than US stocks? I will do a bit of testing before I try this as I always like to understand the logic behind something and also using the correct data. This seems so basic if you can stick with the ups and downs and take the good with the bad.

[@BradKaellner]

Greenblatt's magic formula site only shows US stocks but I'm sure there are other screeners to turn up foreign options as well. Here's the link for TIKR: app.tikr.com/register?ref=e2jdyq

[@grahamr939]

@@BradKaellner Thanks Brad for the TIKR link. I see what's on the list and if it meets my screeners, then I look for a Canadian equivalent.

[@rsaha130]

Loved the video!! I learned a lot. Thank you.

[@steeldragonjovi]

I apologize if I missed it, but why aren't you adding more to repeating stocks?

[@BradKaellner]

I don't want to reward companies that stay cheap as they might just be value traps

[@sc358.]

So essentially in another year you will be selling and buying (rebalancing) every quarter? A 40 stock portfolio with 50% or less turnover. Sell after 2 years unless it is still in the screener and more compelling than what else is there?

[@sc358.]

And also are you reading these VIC write ups to see if they make sense or just counting them as a filter?

[@sc358.]

And does anyone who makes the cut for dataroma count as a super investor?

[@BradKaellner]

@@sc358. not reading the VIC writeups but they may be useful when decision time comes for selling

[@BradKaellner]

@@sc358. yes all tracked on Dataroma I’m considering superinvestors

[@BradKaellner]

The short answer is that I don’t know what my exit strategy is yet 😂 maybe I’ll just let them all ride for a decade

[@jamessketcher]

Hi love the content. Just a quick question. You never said how to check value investors club.

[@scottdawson9987]

Brad, can you remind me where you get your financials. Interestingly I am finding difference in Net Debt and ROIC in Rule 1 Toolbox and I would like to compare. Thanks for all your help!

[@BradKaellner]

Has the Rule One toolbox been updated yet? I'm pulling these financials from TIKR Terminal. 10-yr median ROIC from QuickFS

[@scottdawson9987]

@@BradKaellner Brad, I went into Seeking Alpha and compared yours to SA, the Toolbox and 10K. Your numbers are correct. I need to dig into the Toolbox more and find out what's happening. I am glad this happened, because I have been using the Toolbox MOS calculator as a screener. I put in every stock I look at, which is well into the 100's this year, to see if they are trading at MOS. It allows me to screen a lot of stocks quickly. It also help me find some great winners like XPEL and DAC. I will use TIKR and QuickFS, haven't used them, now as well. Though I only use as an initial screener, because if it meets my criteria I do much deeper dives, its still an important find. Thanks, I owe you one!

[@kiraskonomitips1463]

How Big market size do you Pick in the screener for your stocks?

[@BradKaellner]

The lowest option at $50m

[@murats9679]

Great video! P In one of your previous videos you mentioned about Monish buying turkish name called Reysas, trading on Istanbul stock exchange. I was wondering if you can share the ticker b/c there are two identical names. Appreicate that

[@BradKaellner]

I believe it's RYSAS - Reysas Tasimacilik ve Lojistik Ticaret AS (you can find it in TIKR Terminal)

[@Gjackliu]

Thank you for sharing. I am a beginner and it helps me a lot. But I don't know how you figure out the Acq. Mult. and the 10yr ROIC. Could you please tell me how you get those numbers?

[@BradKaellner]

Sure Ken! Do you have access to TIKR Terminal? You can find the Acquirer's Multiple on the Valuation Tab as [LTM Total Enterprise Value / EBIT]. The 10-yr median ROIC I found through QuickFS.net

[@Gjackliu]

@@BradKaellner Thanks a lot!

[@juanfranciscogalvez2697]

Thanks from Spain. I really appreciate your efforts and information

[@frankyg6906]

What about a company with 15% earnings yield, 3x the net cash of market cap?

[@BradKaellner]

I'm listening!

[@frankyg6906]

@@BradKaellner I might have made a mistake on the cash vs market cap, but it definitely is compelling. SNEX

[@frankyg6906]

@@BradKaellner looks like most of that cash is restricted cash on the books

[@anjumpervez9190]

Hat made you decide to hold on to the stocks for two years or more? Why don’t you just keep to the one year horizon? Great videos, keep them coming. P.S. How are you determining the Acquirer’s Multiple figure? Please can you help with this.

[@scottdawson9987]

Brad, great video and thanks for including the spreadsheet. I ran your five picks through Rule 1 MOS calculator and they are very interesting. Need to deep dive because in the calculator the EPS growth rate is very high and I need to see if it is sustainable. I did change the EPS growth rate in the calculator to a lower rate, 15%, and they still show under MOS. Just did a quick check, I will dig in the stocks more. One question, since you are deviating from the Magic Formula by adding more filters, why do you by the 5th stock if it doesn't meet your needs. Why not just buy the 4? Thanks for the hard work and sharing your data.

[@BradKaellner]

I guess my needs of buying 5 stocks each round exceed my needs of having all the filters met ;) Honestly though I do want to stick to buying 5 each quarter. I thought about just throwing in an outside pick like CURI or APTS but I want to make sure the results of this magic formula portfolio are true to the method.

[@scottdawson9987]

@@BradKaellner Ok, I appreciate your approach. I really liked the Greenblatt books. What intrigued me about Greenblatt was how he got I believe 50% returns each year. I believe this is more related to his first book, So You Want to be Stock Market Genius. The later books where written because he got a lot of requests to simplify. There great books and you are doing a great service to investors that follow them.

[@Amber_107]

Hi Brad. Just open a account with COBF. Its $4.99 per month or $49.99 per year. Its not $25 lifetime. Have I opened a account on different Corner of Berkshire & Fairfax?

[@BradKaellner]

Share the link?

[@relarras]

Love the series.

[@BradKaellner]

I'm so glad Reli!

[@grahamr939]

If you started now running these 30 or 50 stocks M.C. >$250M now with your updated filters and the same stock comes up again in your top 5, would you add another $100 on that stock> i.e. DISH

[@BradKaellner]

Nope, I don't buy the same stock twice. I think doubling down might do more harm than good as it could reward the value traps that stay cheap.

[@nikunj150188]

That’s great Brad. I will pick mine this week. I would like to know How long does it take for you to gather all the data and come up with the final sheet?

[@BradKaellner]

I didn't track it but a couple hours

[@Nbvgfbnvcjkubvcf]

Brad have you considered selling covered calls on your magic formula stocks?

[@BradKaellner]

I have not delved into the realm of covered calls yet!

[@Vance005]

Brad - would the strategy of selling a stock as soon as it drops off the mf stock screener have any merit?

[@BradKaellner]

One issue there is it could drop off just because a bunch of things get cheaper, rather than price rising on the target company. It may have merit, but I'd need to hear a compelling argument to support it.

[@samstell9291]

I do this myself. At Gotham Capital, Greenblatt trades daily to sell stocks as their MF ranking decreases and replaces them with higher-ranked stocks. It makes sense to own a portfolio of stocks from the top 30 list and then sell them when they fall off the list of the top 30 (since the new company will be more undervalued on average). This makes sense assuming low transaction costs (taxes and fees). I also take a screenshot of the top 30 MF stocks each day and then buy the stocks which have decreased in price the most from the highest price they've been on the list. On average these stocks will be more undervalued. I also rebalance my portfolio weekly to stop one position/ exposure to one sector from getting to large.

[@Project2013B]

Very interesting video. I bought the book years ago, but was listening to too many gloom and doom podcasts at the time. Curious, rather than forcing yourself to buy 5, why not re-evaluate a new list each month, until your have your 5?

[@Project2013B]

Another question... is there a way to mimmick the magic formula list using just a regular stock screener? The reason I ask is that I am in Canada, so I would like to apply this to Canadian stocks as well.

[@bobstroll]

You don't mind that this bunch ( and generally Magic Formula suggestions right now) are a bit heavy on the pharma industry? I personally loath making money from pharma, but I wonder if it is is currently evaluated in a way that wont make sense in the long run. Speaking of "green" ways to make money, you wanted to look into some renewable energy stocks? They are currently on sale ;)

[@BradKaellner]

Which RE stocks do you like best? I may very well limit my exposure to any given sector in the future, particularly pharma

[@JawadEssani]

I like csiq

[@despinastokou7482]

I bought REGI which was the only RE stock I could see on the MF list. They have all been falling lately(something to do with interest rates) so looking to buy some more. Just read for NEE (as a relatively low risk dividend stock) and XEL with possibly more potential

[@jamessketcher]

Can I ask why you did finish the rest? Is it because the insider ownership was too low for your liking?

[@BradKaellner]

Yes insider ownership is a high priority filter for me

[@rawdenim3612]

Hi Brad. Do you know how often the MFI website is updating?

[@BradKaellner]

I'm pretty sure each business day

[@rawdenim3612]

@@BradKaellner so you can start the magic formula Experiment every day new? I startet yesterday by copying your selection for a little test. Only 50 € each 5 Stocks. I heard a lot good comments about magic formula but didnt find time to dig in. 🤣ordered the book and bought your selected Stocks 8hours ago....lets see whats going on 🤞 German is watching you 😇

[@anooshs6689]

A suggestion would be to consider the quality of earnings as part of your analysis and avoid accounting fraud. Figures such as ROIC and ROA can be misleading as these numbers are susceptible to exaggeration and deception. Perhaps relying on these figures can be more helpful if you compare each number with those of other companies in the same industry. Above-average numbers in these two categories can at times signal fraud and deception. Also, I get that magic formula already screens for distressed stocks, but since you're improving on the original approach, how about making room for margin of safety?

[@BradKaellner]

I'm trying to make my screening process simpler as opposed to more time-consuming ;) Are there easy-to-find metrics that you would suggest for these improvements?

[@anooshs6689]

​@@BradKaellner Let me get back to you on this.

[@wiserhappierricher3147]

Hey Brad, great video again especially the last years analysis. I also compare it to s&p500, it's straightforward in google sheet. Are you planning on doing it for next few years? Or just hold this year's for the next 2/3/5 years?

[@wiserhappierricher3147]

Also I've been trying to code to automate magic formula. Am 20% through, now the difficult part of coding the filters

[@BradKaellner]

I plan to buy every quarter indefinitely... just not sure about the selling part

[@BradKaellner]

Oh that sounds like a fun (and useful) project!