Magic Formula

With this combination we wanted to determine if the results of the Magic Formula could be improved by adding an additional factor to select companies to invest in. Out of our universe of companies we thus took the 20% of companies with the best MF-ranking and combined them with the second factors we tested.

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Across all the second factors we tested the average return was 401.8% (median was 359.3%) over 12 years. On average, this was the eighth best (out of nine) two-factor strategy we tested. The best performing combination would have been to combine the best Magic Formula companies with the companies that had the highest 6-months price index. This would have given you a return of 783.3% over 12 years.

The worst performing strategy would have been to combine the MF-rank with return on invested capital. In this case your returns would have been 121.6%.