In the next article, we will focus on a screen that we have developed internally based on our research. It combines the Greenblatt Magic formula with ideas developed by the father of value investing, Benjamin Graham. We called it the ERP5 screen. But is the success of the investment really as easy as following the green leaf system? The British model of Stockopedia`s magic formula, based on careful research to replicate the formula, has so far achieved much below average results. Greenblatt himself said that the system should only be judged over 3-5 years, so it may still be early, but in this bull market environment, as other value strategies have become gangbusters, it seems to have been left behind. The Greenblatt Magic formula also has its flaws. It selects stocks based on an equally weighted ranking of earnings return and ROIC, but completely ignores whether the company`s outlook is improving or not. In the last article, one of the stocks selected was CTC Media, a company that has lost more than 90% of its value in the last 5 years. Earnings returns and ROIC may be high compared to other companies, but fundamentals continue to deteriorate. So why not combine the 2 strategies? We have developed a screen that starts by selecting the top 20% of Magic Formula actions and then only filters actions with a Piotroski F score of 7 or higher. We called it the Magic Formula Best Selection, and it`s available as a model.

To refine the screener, I applied the same additional filters used in the previous article: NEW YORK (MagicDiligence.com) – Joseph Piotroski is a former professor of accounting at the University of Chicago and an active value-based investor. An excellent book recently titled Quantitative Value by Dr. Wesley Gray and Tobias Carlisle attempts to build a systematic investment process based on the work of Ben Graham and Warren Buffett. The authors thought there was no better starting point than the magic formula they deconstruct, test and criticize to improve it. Joseph Piotroski is a former professor of accounting at the University of Chicago and an active value investor. Looking at stocks with very low price-to-book ratios, he noticed that many of them were in poor financial health, had little chance of surviving, and deserved their low valuation. Piotroski set out to develop a system to take these lists of low-priced stocks and mechanically filter out those that had little chance of surviving and thriving, leaving behind a number of potentially attractive investment opportunities. Not only that, but you can also see that if you combine the ERP5 strategy with other factors such as 6 or 12 months of price dynamics, you can significantly increase your return on investment. Of course, looking at past results with any investment system does not mean that it will work the same way in the future. Those who want to learn more about the Piotroski Score and other financial topics should sign up for one of the best investment courses currently available.

. The overall Foot Locker score for Piotrosky in 2016 was 6 out of 9, which could make it an average value proposition for 2022 using the Piotrosky method. . A company with a Piotroski F score of 8-9 is considered strong. Alternatively, companies that achieve the F score of 0-2 are considered low. On the other hand, Piotroski recommended short selling stocks with a score of 2 or less. Short selling is not part of the Magic Formula strategy, but it can be a wake-up call to pay close attention to these stocks before considering buying. Currently, only 3 IFM shares meet this criterion: „1“ if the operating cash flow is higher than net profit, otherwise „0“. This test identifies potential accounting issues because cash flows attributable to amortization of intangible assets (i.e., „non-cash“ expenses) are generally higher than net income. In the research work, Luc and Philip set out to design and test an investment strategy that combines the following valuation and quality measures: Therefore, it is interesting to calculate Piotroski scores for stocks on the Magic Formula screen.

The highest scores should clearly indicate a favorable stock market price for a quality company with relatively strong business momentum – a pretty solid recipe for success. They called the ERP5 strategy, based on the initial letters of the 4 factors. Since then, just like you, I have been looking for an even better investment strategy. „1“ if the ratio of current assets to current liabilities is higher than in the previous year. Will the company become stronger financially? As you can see, the ERP5 strategy has yielded much better results for companies of all sizes than the Magic Formula investment strategy, actually for small businesses, if you had done almost 200% better. . As usual, a colorful mix of individual actions, but again a solid result overall. The average profit here is +10.3% and is therefore well above the „1“ if the increase in sales exceeds the increase in total assets, otherwise „0“. This can identify unprofitable investments by management. . As usual, a colorful mix of individual actions, but again a solid result overall.

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