This post is a brief summary/snippet of an article I have written that was published exclusively on Seeking Alpha Sept. 19th 2018.
You can read the whole article here: The Magic Formula needs an Upgrade
- The Magic Formula can still be great, but it needs a refinement. An element of historical stock price in relation to present price is added to the value based model.
- Combining the two different approaches by adjusting for stock quote development results in a double price discount. This can make the MFI approach more profitable.
- How the system can be applied practically and become an efficient tool for ranking stocks. Presenting a new, quantified score as a result.
- Examples from my own portfolios that are based on the “Double Discount” approach, and how they perform versus the market.
In this article, I will first go into the basic principle behind the Magic Formula and the Value Investing approach: The Margin of Safety. I will describe in detail why a Margin of Safety is fundamental for becoming a successful investor, supplied with phrases from Benjamin Graham’s famous book “The Intelligent Investor”.
Furthermore, I will describe how to benefit from price fluctuations by applying the Margin of Safety as a foundation. I will explain how these different principles can be combined and applied efficiently in practical investing in today’s markets. —————