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What is MFI or I presume Magic Formula Investing?


About the Book


In 2005, Joel Greenblatt published a book that is considered one of the classics of finance literature. In The Little Book That Beats the Market – a New York Times bestseller with over 300,000 copies in print – Greenblatt explains how investors can systematically apply a formula that seeks out good businesses when they are available at bargain prices.

In a straightforward and accessible style, the book also explores the basic principles of stock market investing and explains why success eludes almost all individual and professional investors.

How it Works


1— Use the Stock Screener to select the top-rated stocks from the S&P CompuStat database. Choose the number of stocks to view, and choose the size of the companies you want in the list. Choosing more companies leads to greater diversification, and choosing larger companies generally leads to less volatility. Eliminate any companies you do not want to own for any reason; however, you should keep at least 20 stocks in an effort to properly manage risk.

2— Use a cost effective way to purchase the stocks. If the amount you are investing represents a large percentage of your long-term investment portfolio, you may want to consider making multiple portfolio purchases over a 12 month period.

3— In our opinion it is good idea to keep your stocks for approximately one year. The system is designed to maximize your after-tax returns; therefore, you want any gains to become long-term by holding them for a year, and you want to sell any losses before the one year holding period is reached.

4— Once you have sold any gains and any losses, select and purchase a new portfolio of screened stocks.
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