Magic formula screen for Singapore stocks - 2

Happy Holiday and long weekend to all, it's been more than 6 months since I last posted the Magic formula screen for Singapore stocks. Let's take a look at the results if you were to invest in the list of stocks back then and the returns from these counters now. A slight change to the previous list was I have added SPH to the list.

On the last column, it shows the percentage returns of each of the counter, Green indicates that it is a gain and Red means it is a loss. We are already halfway mark into the year, how does your portfolio perform.

Magic formula screen for Singapore stocks

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

1. Establish a minimum market capitalization (usually greater than $50 million).
2. Exclude utility and financial stocks.
3. Exclude foreign companies (American Depositary Receipts).
4. Determine company's earnings yield = EBIT / enterprise value.
5. Determine company's return on capital = EBIT / (net fixed assets + working capital).
6. Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital (ranked as percentages).
7. Invest in 20–30 highest ranked companies, accumulating 2–3 positions per month over a 12-month period.
8. Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.
9. 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

What is your investment strategy for 2014?

While I was surfing(usual routine) for information to reinforce my financial knowledge, I came across a video about this value investor, Joel Greenblatt. Apart from being an investor, he is  also an adjunct professor at the Columbia University Graduate School of Business. He devised a system which he had faithfully used and as a result, a book that he has also written - 'The Little Book that Beats the Market'. To most of the people, his system was known as the 'magic formula'. So what is this 'magic formula'.

The 'magic formula' is a simple set of system, which I like, as most of the readers know that I like to keep it simple.  To most of the folks who read or watch about him, most would have known of the 2 criteria, which helps one to select good companies at bargain price. However, there is also the 3rd most important criteria which he mentioned repeatedly in the video above, Patience. And, yes, most of the retail investors wanted to make a quick profit from the market and most of the time, they are more excited with counters where lots of other people are talking about.

If you want to know more about him, there are lots of information and videos in the internet, so I will not share more here. What I want to share is now I have another selection strategy which is simple to execute and a proven track record. 

Below is what I will be using in 2014 and longer if it make sense. In the funnel, you have the selection criteria from Walter Schloss and Joel Greenblatt. The funnel basically provides the guide to what to buy, and the TA tells you when to buy and cut loss.

Greenblatt's formula; source: oldschoolvalue.com

Remember a lot of the experts tell us these;
1. Buy and keep long term
2. Buy low and sell high
3. Dont time the market, always be in the market

But these people never share the how, and this strategy, though boring, addresses the above and keep your risk lower than most people around you.