Hello friends,
I’ve written about the importance of keeping an eye on your Magic Formula stocks because, even though you plan to buy and hold for a year, there are certain things beyond our control. One of these is when another company buys the company you own outright. This happened earlier this month when Apollo Global Management bought The Michaels Companies (MIK), which I owned in my Magic Formula Portfolio. Overall, it’s a good thing for the portfolio because Apollo paid $22 per share, or 47% more than MIK was trading at when the news was announced, about 10 days after I bought the stock. But I just found out about it a few days ago! My brokerage account sends me loads of useless marketing emails but when a company buys up one of my investments they don’t bother to contact me. Ok, I admit I hadn’t set up alerts. Vanguard allows you set up alerts for various things, like when a stock changes value by a certain percent, but there is no alert for “Corporate Action – Merger”. I think their category “News” covers these kind of events, so I selected to be notified on all my individual investments – you can’t choose “all”. Anyway, try to set up alerts to be notified when these Corporate Actions happen, but and check up on your stocks once in a while to make sure things look right. This is just one example of how this strategy seems very simple at first but actually has a lot of devilish details. You can’t just buy 30 stocks and fall asleep for a year.
And before I set the alerts I used my random stock picker to find Nautilus (NLS), a company I would never have considered buying if I weren’t using this strategy, but one that I did buy before as part of this scheme back in January 2018. Nautilus lost me money back then; we’ll see about this time.
For overall performance, things are looking up – but still way behind the S&P:
The return on my portfolio has been just over 28% (including dividends) since February 2017, while the SPY (an S&P 500 ETF) has returned over 81%, not including dividends.
Hi Andrew,
Thanks for your hard works and sharing. It would be glad to implement MF strategy in next one or two years.
Thinking about starting this now but I’m skeptical of companies that had big jumps due to COVID.
Hi Andrew,
There’s a good reason to be wary about following this strategy, but I don’t think COVID has anything to do with it. Plus, if a company’s stock has a big jump in price, there’s a decent chance that movement will knock the stock off the list. Remember, the price is one of the major determinants of the Magic Formula Stocks and the higher the jump the less likely the stock will stay on the screener.
Take care,
andrew