Does it Pay to Screen Further?

For the past few years, I've been using Joel Greenblatt's Magic Formula stock screener with great results: 43%, 27%, and 21% for my three IRAs over the past year v. the 9% return on the Standard & Poor's. Looking at the two accounts I've had since 2008, the results are even better: gains of 7% and 40%, whereas the Standard & Poor's index lost 8% and 6%.

I've selected stocks from the Magic Formula screener two ways: randomly choosing stocks on the screener, and screening the stocks further according to value principles such as low debt, brand name and durable competitive advantage, to use Warren Buffet's phrase. Do the stocks I hand pick do better than the ones that simply show up on the screener?

Yesterday I placed an order for eight hand-picked stocks from the screener:

BMY (Bristol Myers Squibb)

CECO (Career Education Corp)

FLL (Full House Resorts)

GPS (Gap Inc.)

HRB (H&R Block)

MHP (McGraw Hill)

V (Visa)

VALU (Value Line)

In my Watch account (which doesn't use real money), I've selected three groups of eight stocks picked from the stock screener, which I set to the minimum amount ($50 million market cap):

Screener A-E:

AGX (Argan Inc.)

AMED (Amedysis)

APOL (Apollo Group)

BDSI (Biodelivery Sciences)

CBST (Cubist Pharmaceuticals)

CNXT (Conexant Systems)

DLX (Deluxe Corp)

ELNK (Earthlink)

Screener F-O:

FRX (Forest Laboratories)

IDCC (Interdigital)

IPXL (Impax Laboratories)

JGBO (Jiangbo Pharmaceutical)

MRX (Medicis Pharmaceutical)

NEWN (New Energy Sys)

OSK (Oshkosh Truck)

PDLI (PDL Biopharma)

Screener P-T:

PPD (Prepaid Legal Services)

PRSC (Providence Service Corp)

PWER (Power One)

SCEI (Sino Clean Energy)

SNDK (Sandisk)

SUPG (Supergen)

TNAV (Telenav)

USMO (USA Mobility)

After one year, I'll see what these groups of stocks have done. (The Magic Formula method requires holding stock for one year only, keeping them only if they are still on the screener).

Of course this little experiment won't show that one method is always better than the other. I just want to see if it's worth my while to screen Magic Formula stocks.