Magic Formula Investing with a Twist (SEE MY LIVE PORTFOLIO)

[@BradKaellner]

What do you think about my filtering process to get from 50 down to 5 magic formula stocks?

[@TheWolfgangplayer]

Intressting strategie I like the "inider ownership"-filter a lot with your explanation of an 100-Bagger. Also the part wehre you would try to keep a compounder makes more sense for me personaly than selling after one year. (mohnish says he trys to never sell the compouners!) Maybe I would slightly twist the VIC-Filter in such a way, that I would only invest, if the the Thesis made sense to me or more importantly it can be (fully or partianaly) untersand by myself. That means just invesest if you can understand it and there's decent upside visable. (not just a write up exists.) With such an approach you would more activly pick the stock. Maybe an alternative idea to yours. But over all I like your approach and it's fairly easy to do :) best wishes and good luck with your investments.

[@BradKaellner]

@@TheWolfgangplayer Cool, that seems like a logical way to go!

[@javicis6424]

It is a good process, but I think you can still improve it: a Checklist SIMILAR to the Pabrai Checklist...

[@BradKaellner]

@@javicis6424 There will always be room for improvement ;)

[@JorgeMartinez-wt4vs]

Shameless Investor - here we go, will copy you too - LOL

[@matthewsingleton6296]

This is perhaps the best magic formula screener video that I have ever seen.

[@BradKaellner]

So glad to hear it Matthew!

[@BradKaellner]

I presume you saw my more recent one?

[@matthewsingleton6296]

@@BradKaellner Yes. Great videos, Brad. Huge value add.

[@BradKaellner]

@@matthewsingleton6296 I'll keep bringing it! ;)

[@TraceyLuna]

I just discovered your channel and this is a great video! I was already going to do the Magic Formula but I will now implement your "twist".

[@BradKaellner]

Be sure to watch the latest magic formula video that I put out just a few days ago 🤙

[@PavolIvicic]

this is great Brad. I'll be riding along with you. blindly copying you and bowling with bumpers

[@BradKaellner]

Haha, you are a fast learner 😉

[@tianxia4092]

Very interesting. I wonder if there is any way to backtest this strategy.

[@itisimpossibleto]

how did these stocks end up doing?

[@BradKaellner]

It's still early in the game, but here's where they are now... UIS +39%, MCFT +16%, GTX -11%, MSGN +27%, DISCA +34%. So 21% overall return in 5 months.

[@brianbritton3175]

I started my magic formula account a few months ago. I buy 1-2 stocks a month. I narrow down the list by share price. I don’t have a lot going into this account, and I’m still on the Robin Hood fractional share waiting list. So I have to get whole shares. After I narrow down the list I look at each company, what sector they are in, what’s the latest news on them, then I just make a gut call and pick one. Of the ones I have bought, half are up 10% or more, 2 are over 30%. The worst is down about -3%. So overall it’s been a positive test. I am going to start adding stocks from the web sight Brad shared a while back for magic formula for dividends. I like dividend stocks, and I want to test how the formula works with them.

[@BradKaellner]

Awesome Brian! Keep us updated on your results!

[@HighVega]

Hey, this was a great video. I plan on implementing this strategy on a tax-advantaged account like a Roth IRA. I plan on investing $1500 every quarter. So I understand the buying and selling of shares between different years. But I had a few questions on buying and selling within the year: 1) Do you keep the stocks for a minimum of 1 year, or can you sell them before the 1-year mark? 2)Let's say for example, Quarter 1 you buy five stocks. Quarter 2 three out of the five stocks repeat on the list. What would you do then? Would you just buy more shares of those stocks? Pick three other shares you don't have already? Only buy two? I don't know. I'm confused on that.

[@BradKaellner]

Great questions, and very smart that you're doing this within a Roth IRA! Yes, I will keep stocks for a minimum of one year (unless the superinvestor has sold and the stock has a loss, then I will sell after 364 days to take advantage of tax loss harvesting). The second question you ask is still something I'm wrestling with. My sense is that I will not buy the same stock twice. So I'd just buy 5 new stocks that rank highest for my criteria.

[@punjacksond]

i will test this approach too ! with 100 dollar each of the five looks like a great idea to test out! still love the cloning portfolio more cuz it just a perfectly lazy way to invest

[@VictorValente87]

This seems a very reasonable strategy, thanks for sharing.

[@mongezisotsaka9604]

Hi Brad. What if the superinvestor just reduces their position. What will that trigger for your strategy, if anything at all. Thanks

[@nigell.8705]

This video is super valuable. Glad I found this.

[@ramaliya197]

Great video. Noticed that the picks for June and September were completely different. Is this by design? I was thinking intuitively that there would be some stocks from the June quarter that will feature in the September top 5 ranking.

[@BradKaellner]

There was indeed overlap! I have a rule that I don't buy the same stock twice in my MF portfolio. Some of these recurring MF stocks will be value traps and I don't want to overweight those!

[@ramaliya197]

@@BradKaellner interesting perspective. ! However a) I believe the holding time for a stock in your approach is generally a few years ? If repetitions are not allowed in quarterly screens , wouldn't that lead to over diversification with around 50 to 60 stocks in 3 year's. b) your mutlibaggers propotion of portfolio will remain relatively small . ?

[@BradKaellner]

@@ramaliya197 Good observation! Yes I will have around 60 stocks in the portfolio by the end of year 3. I see them as separate 3-year portfolios that have some overlap. I know, it's an odd concept. Please say more about point (b)

[@ramaliya197]

@@BradKaellner about point b) . In a sixty stock portfolio, even a multi bagger stock which goes up 3 to 4x will not move the over all needle due to its small initial allocation.

[@mariahcaid-loos9283]

Great video. Can't wait for your quarterly update

[@BradKaellner]

You and me both!

[@susymay7831]

Magic Formula has drastically underperformed the market over the last 15 years. Lots of good investor's look for ideas in stock screens as well as try to improve their screens, though. I am looking forward to following your MF adventures. Good luck!

[@brianmcdaniel7211]

Thanks for doing this Brad! I've been an index investor for all of my investing life and made good returns through this bull market, but now I'm trying to get out on my own and learn. I've read Monish, Guy, Phil Town, Buffett, Greenblatt, and I follow Phil's podcast, InvestED. However, I really like this approach of the magic formula over me trying to learn valuation Phil Town style. What is your opinion on a layman trying to value companies vs. magic formula. Thank you!

[@BradKaellner]

I think a thoughtful approach to magic formula has a very good chance of beating a layman trying to value companies

[@antonpanferin-multibaggerh5108]

Hi Brad! Great content! I have a question. As i was watching your video I paid attention to DISCA stock and decided to dig a little bit. The first thing for me was that M Burry had a “11.61” % stake of his portfolio according dataroma but then I remembered watching a video describing his Q2 options portfolio and what I found was that he has around 71% of his portfolio in options part of it and the rest is equity holdings which are 29%. So dataroma shows us the equity part of his portfolio and from that we assume that his overall investment portfolio works out to be around $310M and now his Discovery stake would comprise just mere 3,4% of portfolio, which is a big difference from 11,6%. The level of conviction is therefore significantly reduced. Wonder what do you think about that and what you would suggest we do with this information since we don’t always have a chance to see whole portfolios of supervisors. I thinks it’s a good filter in picking stocks on MF but now a bit confused. Thanks!

[@BradKaellner]

I don't pay too much attention to how big the bet is... only that a superinvestor owns it. Of course, the higher the conviction the better.

[@AdamSegalthe]

Thanks for breaking this down Brad. Is there a specific reason you chose to do this a few days before end of quarter? Would it make a difference to do this at the beginning of a quarter with "fresh data"?

[@BradKaellner]

You're welcome Adam! Great question. How about you start your magic formula portfolio next week so we can compare? Truth is I have no idea if it would make a difference ;) Will be interesting to see how much the screen results change.

[@AdamSegalthe]

@@BradKaellner sounds like a plan :)

[@guedesricsfca]

Great video!

[@BradKaellner]

Thank you! Next update out this week.

[@a.f.6112]

hi , why you dont buy stock this month ?

[@BradKaellner]

I bought the first round end of June, so the next round of magic formula stocks will be end of this month

[@lfbarona1869]

like the concept. I will try it also,

[@BradKaellner]

Keep us updated on your results!

[@FreeyourFinance]

I have just started the exact same experiment funny enough, and we used the same sentence... putting your money where your mouth is haha. Great minds think alike hey?! I look forward to seeing your updates, and I have just subbed.

[@BradKaellner]

I look forward to comparing notes!

[@SebAnt]

I am so glad to discover your channel! I recently moved a large sum from my 401k into an IRA, and I am going to try your approach with $100K. Should I buy best 7 stocks for $25K every quarter?

[@BradKaellner]

Seems like a reasonable approach to me, unless you want to deploy that lump sum over two years instead of one. Will you be holding for one year per the magic formula, or holding longer?

[@SebAnt]

I plan to invest the entire $100k within 9 months. I may hold longer if any stock is performing extremely well say 3X over a year.

[@BradKaellner]

@@SebAnt Please keep us posted on how it's going! Have you already bought the first 7?

[@JoeC5050]

buying just 7 stocks is very risky... I would buy 20-30stocks in m1finance..

[@SebAnt]

@@BradKaellner I bought 5 of the stocks for $23.5K, have limit order on the next 2. My own little twist is to buy at lowest price in past week, assuming no need to hold for *exactly* one year, as it's in an IRA where I don't worry about capital gains or loss.

[@birddude]

Hi Brad, thank you for the helpful ideas. How have you been doing with the magic formula? I have been following magic diligence since February and made about 60% return so far. I also noticed that you are doing less magic formula videos lately, and more phil town stuff. Why is that? I'd love your input. Gadi

[@BradKaellner]

Wow, awesome to hear that MagicDiligence is working for you! I've only been investing in Magic Formula for a little over 4 months now and haven't been following the performance. It's basically a 3 year coffee can approach. Following it closely would drive me nuts. Haha, there's only so much I can say about the Magic Formula! What should I expand upon in future videos? One thing I'm digging into at the moment is running a MF screen for stocks globally, and figuring out which markets I can buy through Interactive Brokers.

[@DaRyteJuan]

Yeah, Brad. I really like your approach. By itself, the so-called Magic Formula isn’t actually Investing. It’s just a very crude form of day-trading. I really like the idea of riding on the coattails of superinvestors.

[@BradKaellner]

Thanks! Have you formulated an approach for riding those coattails?

[@DaRyteJuan]

​@@BradKaellner No. Not yet. My former employer just dumped my Roth IRA into my lap. It got transferred into a retail Fidelity account. I can't even tell what vehicle they were using before it got converted. It's an extremely small portfolio. When it got converted, it got dumped into a money market vehicle (basically a cash account earning .01% interest. (I might be exaggerating). So I just experimented with buying a couple of ONEQ ETFs. The rest is still sitting in the cash vehicle. So I've got my toe in the water. Just enough to make my brain interested enough to start bootstrapping some knowledge. But the worst part is the emotional rollercoaster. Even with this teensy-weensy investment, I'm finding my emotions are not that easy to control. So I'm taking things slow.

[@JoeC5050]

Why cant u buy all 50 stocks in m1finance and buy every week?. or say buy 4-5 times in a month and then old for one year..!

[@BradKaellner]

You could! That's not how Joel Greenblatt recommends to apply the formula, but as long as you don't have trading commissions it seems like you would do well. Keeping track of 2600 stocks might be a pain when it comes to selling.

[@JoeC5050]

@@BradKaellner why 2600 stocks..??.. I am talking about just 50stocks... invest money in those 50 stocks every week certain amount..

[@BradKaellner]

Sat Sai I see. The list will change slightly from week to week. And the Magic formula investing approach says we should select new stocks each buy period rather than doubling down. But it may be an interesting approach to test!

[@kapitol5314]

I m cloning this.

[@BradKaellner]

Haha, well you should wait for my next magic formula stock picks at the end of March

[@travelindiaindia9217]

Hi greetings from India. Your videos are very informative really like them I wonder if you have created a magic formula based on annalise a company befor investment? Thanks & Regards. If you ever come to India please join me for a masala chai...🍵

[@BradKaellner]

Haha, I definitely will! The magic formula approach I use is based strictly on quantitative factors as I want to minimize the inclusion of my own biases.

[@matthewkelly2634]

Those are some sweet MF stocks! 😀

[@BradKaellner]

Dropping the next 5 tonight!

[@emonloyens6429]

it's all pure speculation, nothing more: super investors have that title because they have the $ to invest, not because they are always right. I invested $12K in a marijuana stock that cost $0.40 per share last december 2019. I sold all my shares end July 2020 at $7/share (that's a profit of $6.60/share). That's just 7 months. Who knew we would have a pandemic? Who knew that would lead people to smoke more pot? I was just lucky.

[@BradKaellner]

So you believe that Warren Buffett's outperformance is entirely due to luck?