Magic formula investing was derived by Joel Greenblatt, he used it to buy a basket of stocks that has high earning yields and a high return on capital.
Wikipedia has documented the approach and the formula, you can find the link here. Below is the extraction of the para from the link.
The Formula
- Establish a minimum market capitalization (usually greater than $50 million).
- Exclude utility and financial stocks.
- Exclude foreign companies (American Depositary Receipts).
- Determine company's earnings yield = EBIT / enterprise value.
- Determine company's return on capital = EBIT / (net fixed assets + working capital).
- Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital (ranked as percentages).
- Invest in 20–30 highest ranked companies, accumulating 2–3 positions per month over a 12-month period.
- Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.
- Continue over a long-term (5–10+ year) period.
The Results
Applying the formula on the Singapore stocks, this is what we have. Some of these will definitely be in my watchlist, and let's visit again to see how they perform.
Do you have any of these in your portfolio?
| EY | Rank | ROC | Rank | Score | |
| Rotary Engg | 367 | 1 | 16 | 12 | 13 |
| chew group | 26 | 6 | 20 | 8 | 14 |
| challenger | 17 | 13 | 31 | 3 | 16 |
| UMS | 13 | 17 | 28 | 4 | 21 |
| Ellipsiz | 29 | 4 | 13 | 17 | 21 |
| CSE global | 19 | 11 | 17 | 11 | 22 |
| TaiSin | 17 | 14 | 20 | 9 | 23 |
| Nam Lee | 29 | 5 | 13 | 18 | 23 |
| 800 super | 13 | 18 | 24 | 7 | 25 |
| Hai Leck | 49 | 2 | 11 | 25 | 27 |
| straco | 11 | 23 | 27 | 5 | 28 |
| keong hong | 17 | 15 | 16 | 13 | 28 |
| new toyo | 22 | 9 | 13 | 19 | 28 |
| isdn | 25 | 7 | 12 | 21 | 28 |
| Starhub | 7 | 29 | 239 | 1 | 30 |
| singpost | 8 | 28 | 73 | 2 | 30 |
| sinwa | 20 | 10 | 13 | 20 | 30 |
| yangzijiang | 23 | 8 | 12 | 22 | 30 |
| Chemical Industry | 32 | 3 | 10 | 28 | 31 |
| QAF | 11 | 24 | 19 | 10 | 34 |
| Vicplas | 13 | 19 | 14 | 16 | 35 |
| hourglass | 12 | 22 | 16 | 14 | 36 |
| SATS | 5 | 31 | 27 | 6 | 37 |
| Venture | 8 | 26 | 16 | 15 | 41 |
| Wee Hur | 19 | 12 | 8 | 30 | 42 |
| Kingsmencreative | 13 | 20 | 11 | 26 | 46 |
| Cortina | 9 | 25 | 12 | 23 | 48 |
| Lum Chang | 13 | 21 | 11 | 27 | 48 |
| Hock Lian Seng | 15 | 16 | 3 | 32 | 48 |
| uol | 4 | 32 | 12 | 24 | 56 |
| gl | 8 | 27 | 8 | 31 | 58 |
| GP Industries | 6 | 30 | 10 | 29 | 59 |
4 comments:
Hi, can you share the screener to get the said rankings?
hi, no such screener available for SG market, did a manual calculation using the formula mentioned.
hihi,
Thanks for sharing the magic formula screen for SG stocks! absolutely loving it. just checking, the criteria says to exclude foreign companies. should companies like Yangzijiang and GL limited be excluded? GL has limited operations in Singapore, while Yangzijiang is a Chinese company listed in Singapore.
cheers,
James
hi;
No I dont exclude them.
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