The Magic Formula has featured in the scorecard for quite some time but we never really added any additional insights. A stock might get a high ranking, but is this mainly because of an excellent score on one of the ratios or does the company have a great score on both? And if a stock has a good Earnings Yield or ROC, how does it compare to other companies, i.e. where does it sit on the distribution? And how are companies distributed for each of the ratios for your specific stock screener selection?
To make it much easier to understand the relative cheapness and quality of the selected company, we created the magic formula scorecard...[more]
One of the most popular ratios in our screener has to be the Earnings Yield ratio. (EBIT/EV) It is one of the two ratios that make up the Greenblatt Magic Formula and many of our members have incorporated it in their own favourite screens. We also use it in the model that selects stocks for our European newsletter portfolio. Whist it is true that this ratio has helped us pick a significant amount of high earners, one of our members (bsinvest) pointed out a few important flaws with it. This article is based on the email conversations and the bright and clear explanation provided by bsinvest...[more]
One of the most common questions we get asked by our new members is: why does your trending value screen show stocks with a VC2 above 10? The VC2 factor range is set to only show percentiles 0 to 10, yet I see values higher than 10.
The answer is very simple. Calculating O'Shaughnessy's value composites is very resource intensive as it requires percentile calculations on 5 to 6 ratios as well as on the combined score. Missing values can't be included in the calculation and one has to make sure that the stocks are distributed in equal groups from 0 to 100. Ratios with missing values also automatically get a score of 50...[more]
The ValueSignals community is growing at a fast pace as the word of mouth is spreading and a growing number of investors move from gut feeling investing to a more systematic, quantitative style of investing. Over the years we have attracted a large group of stock market enthusiasts, ranging from investment professionals (hedge fund managers, investment newsletter editors, .....[more]