I also take inspiration from Joel Greenblatt and his Magical Formula. I am a little skeptical of his formula, though, as people have reported results that are less than the returns that he claims to have. It is also too difficult to replicate his precise calculations, not least because he hasn't laid them out in precise detail.
Another source that I am taking inspiration from is Stingy Investor, who is doing exceptionally well with a Ben Graham formula. The portfolio has thrashed, and I do mean thrashed, the S&P500 over a decade, having returned 18.1% annually. Good enough for you? The formula is very restrictive, and tends to throw up very few stocks.
I have decided to broaden and simplify their approach into just two basic criteria: balance sheet safety, and cheapness. Here are the exact criteria I used:
- market cap > £200m - for adequate size and low spreads
- z-score > 3 - the balance sheet safety measure
- PTBV (Price to Tangible Book Value) > 0 - I don't want any company with negative tangible equity
- PER > 0 - I want to ensure some earnings
- operating margin > 0 - this just ensures that earnings aren't made positive by exceptional gains
I have not investigated the companies in any depth, and have not applied any insight as to how they are likely to perform, their relative merits, and so on. I have simply tried to diversify sectors and applied a minor amount of common sense.
With that in mind, here's the list I came up with:
ACHL 59 ASIAN CITRUS HOLDINGS - FOOD PRODUCERS
APF 328.7 ANGLO PACIFIC - MINING
BVS 441.6 BOVIS - HOUSEBUILDERS
BWY 703.5 BELLWAY - HOUSEBUILDERS
ELR 61 EASTERN PLATINUM - MINING
HOME 157.9 HOME RETAIL - GENERAL RETAILERS
MRW 300.5 MORRISONS - SUPERMARKETS
MSY 413 MISYS - SOFTWARE
RWD 324.5 ROBERT WISEMAN DAIRIES - FOOD PRODUCERS
SBRY 327.5 SAINSBURYS - SUPERMARKETS
The prices (SP) quoted are the ask price in pence as of yesterday closing, obtained from Interative Investor. The FTSE All Share stands at 3122. See you in a year's time.