Once a month I filter stocks according to Joel Greenblatt’s Magic Formula. In his book, “The little book that beats the market” he explains the reasoning behind a simple yet powerful stock filter.
He claims the system is a very good starting point for investing in stocks and explains how to generate a similar ranked list of stocks.
Here is my interpretation of the system with some tweaks.
1. Open finance.google.com and click on “Stock screener”
2. Set the filter criteria:
- Market cap min: 45M
- Return on assets (TTM)(%) – minimum = 0.05
- P/E ratio – minimum = 0.5
- Average Volume min 50000
3. To get all 3845 stocks out to a spreadsheet I cheat!
- I use Google Chrome as the browser, the following is specific for this browser.
- ctrl+shift+i – to open the developer tools
- I click on the magnifying glass button at the bottom of the window to inspect an element on the page
- I click on the “Show rows” select box
- At the HTML code in the developer tools I click the small triangle to open the details
- In the line “30” I Double click the first 30 and change it to 4000 I close the developer tools
- I now select the “30” in the regular page, this will actually send a request to google’s system with “4000” as the limit.
- Now I do ctrl+a to select the whole page, ctrl+c to copy and switch to a plain text editor and paste
- The plain text editor helps filter out images and other fancy unimportant stuff from the web page
- Now I copy from the text editor to a spreadsheet and clean the rows above the main table.
4. In the spreadsheet, I do the ranking and some more filtering
- Sort by ROA (descending order), remove all stcoks with – as ROA (they don’t have assets?!
- Add column titled: ROA rank and type 1,2 and drag down all the way to the end to complete the ranking
- Sort by P/E (ascending)
- Delete rows with lower than 0.5 P/E and type 1,2 and drag down all the way to the end
- Add column “sum rank” and in it add the two ranks
- Sort by sum rank, ascending and add final rank, type 1,2 and drag down.
- Lastly, I like adding a percentile to the rank – I look at the total number of tickers left and divide the rank by the total number of tickers and present it as a percent.
sometimes I filter out stocks with “ADR” in their name, these are foreign stocks
I need to also filter out financial and utilities – that’s what the book says.
Here is the list for March 2013