Frequently Asked Questions

Q: What is the purpose of this website?

A: The website was built to give everyone the ability to use a free and simple stock screening tool to select Magic Formula stocks, as described in Joel Greenblatt's book The Little Book That Beats the Market.

Q: How should I decide how many stocks to choose from the given database?

A: In our view, you should maintain at least 20 Magic Formula securities. Of course, as in any portfolio, choosing more stocks will probably reduce its volatility over the long-run.

Q: How do I choose the minimum size of a company based on its total market capitalization?

A: A company's market capitalization is a calculation based on multiplying the number of total outstanding shares for the company, times the current share price. Our data shows that, large companies tend to be less volatile than small companies. In an effort to reduce volatility, it may be best to choose companies with larger market capitalizations (over $1 billion).

Q: How do I choose among the top-ranked companies from the stock screener results?

A: Statistically it does not matter which of our top-ranked companies you choose to invest in, since you are already choosing from the top few percentiles of stocks. Including at least 20-30 of these stocks should help with diversification.

Q: How long should I own these stocks?

A: The Magic Formula system was designed to hold stocks for approximately one year in order to maximize your after-tax return. After the one year period you should screen for new stocks and establish a new portfolio based on the most current financial statements and stock prices. Sometimes a previously owned stock will remain on the list and then you must decide if you want to continue to hold this stock.

Q: How should I decide how many shares to buy of each selected stock?

A: The Magic Formula system is based on buying equal dollar amounts of each stock.

Q: If I purchase a stock from the top-ranked list of stocks and it is no longer on the list several weeks later, what should I do?

A: The Magic Formula system assumes you will continue to hold the stock for a full year.

Q: If I want to add more money to my portfolio in three months, should I screen for a new list of stocks?

A: Yes, you would want to use the most current list of top-ranked stocks for the best results.

Q: How does the Magic Formula stock screener choose stocks?

A: First, there is nothing "magical" about the formula. Similar formulas also work quite well. Over the last 30+ years we have seen many studies that demonstrate that "value" strategies-such as buying stocks with low price/earnings (P/E) ratios can outperform the market averages. In the case of the Magic Formula system, we are screening for stocks with low P/E ratios ("cheap stocks") that also achieve high returns on capital ("good companies"). We then make some slight accounting adjustments to these commonly used ratios in order to be more accurate for comparison purposes across various companies.

Q: How often is the data updated?

A: Typically the price data is updated every trading day at approximately 8:00 AM. The financial data is updated quarterly when we receive the information from our data provider.

Q: Are all stocks included in the stock screener database?

A: The database only contains U.S. listed equities, and we do not include financial industry stocks or utilities due to the unique nature of their financial accounting statements.

Q: Do you plan on including non-U.S. listed stocks in the future?

A: Value investing should be an effective investment strategy outside of the U.S., but we do not currently have plans to open the Magic Formula system to non-U.S. stocks.

Q: Couldn't buying and selling 20-30 stocks each year get quite expensive?

A: Yes, especially if you are investing small amounts of capital. Make sure you are using a very low-cost discount broker.

Q: How long does it take for this system to work?

A: Financial markets are never predictable in the short-term; therefore we strongly recommend that you dedicate at least three years to this system. Of course, there's no guarantee that even then you will see the desired results, but years of successful investing experience and financial common sense lead us to believe that this is a smart way to invest for the long-term.

Q: Is there any reason why I should not invest with the Magic Formula system?

A: If you are someone who cannot commit to using the system for at least three years or you cannot afford to lose money in the market, then you should not invest with this system. Severe market fluctuations certainly make stock market investing a risky proposition, and you must be prepared to invest with a long time horizon and an understanding that your capital is always at risk.

Q: Will you share or sell my email address to any other firm?

A: We will not sell or share your email address with any unrelated firm. We want to occasionally be in contact with our users through email and inform them of relevant news and events. You may receive marketing emails from other websites owned by entities controlled in part by Joel Greenblatt including but not limited to www.gotham.com, www.gothamassetmanagement.com, www.gothamfunds.com and www.invest5.com. Emails sent are compliant with the CAN-SPAM Act and every recipient is given the opportunity to opt out of future emails.