Magic Moments

The "Magic Formula" is a best-selling method for picking stocks. That formula concentrates on a company's return on invested capital as well as its earnings yield (earnings per share divided by the stock price). Rankings can be found at MagicFormulaInvesting.com (in our Links List). The two scores are combined and companies are ranked by their total score.

The formula has worked historically but only seven months of the year, on average, and only three out of four calendar years. When Magic Formula investors hit rough spots, they lose patience and go on to some other strategy.

This is essentially a value-added formula and value stocks have performed well over the years.

* * * * *