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Creating A Magic Formula Screen With Google Finance

Sun, Sep 13, 2009

Magic Formula Investing

Here’s a little secret, I spend most of my online time on a handful of sites. In particular, I
spend about 80% of my time on two sites. The first is in which I am a
premium user and use it mostly to do basic security analysis, look at 10 years of financial
data, etc.. Secondly, I spend a ton of time on Google Finance. Before moving on , I want
to make a disclaimer that I am a big Google user. I use its search engine, mail, feed
reader, webmaster central, Adsense, Adwords, and a few other Google products. I find
Google’s products simple to use and more importantly, beneficial. Now, back to Google
Finance. Google Finance is relative new to other major finance sites such as MSN Money
and Yahoo Finance. It launched in 2006 and was pretty basic. You entered a stock symbol,
and Google Finance returned a stock quote, chart and a few links to outside sources. Like
every other Google product, Google Finance slowly but surely started to become more
interesting. One of those things that made Google Finance a hair more interesting is its
stock screener. And from that stock screener, we can create a custom magic formula screen.

Why Create A Custom Magic Formula Screen

1. First of all, always use the free official magic formula screen at Its the website solely dedicated to The Little Book
That Beats The Market.
2. As a magic formula investor, there is no guarantee
will be around in 10 years. Although, according to, the URL is
registered until 2013. Yet, I want to have a backup “just in case”.
3. You can search for more companies, including foreign stocks. The official magic
formula screen currently allows users to search for screens with 30 and 50
companies. Prior to the site update which occurred in February 2009, users were
allowed to search for the top 25, 50 and 100.
4. You can search for smaller companies. In the same February 2009 update, users
are now limited to choosing stocks with a market cap greater than or equal to 50
million. If you have seen this Bruce Greenwald Value Investing Video or this
Paul Sonkin video, value is often found in small obscure companies. 1
Creating A Magic Formula Screen With Google Finance

Magic Formula Screen Parameters As Described In The Little Book That

Beats The Market

General screening instructions can be found on the chapter titled “Step-by-Step

Instructions” found on page 135. The first 2 bullet points (found on page 136) are the
important ones.

• Use Return on Assets (ROA) as a screening criterion. Set the minimum ROA at
25%. (This will take place of return on capital from the magic formula study.)
• From the resulting group of high ROA stocks, screen for those stocks with the
lowest Price/Earnings (P/E) ratios.(This will take the place of earnings yield from
the magic formula study.)

Creating A Custom Magic Formula Screen In “X” Steps

1. Go to Google Finance’s Stock Screener, which can be found on the upper left
2. It will take use to the default stock screener which has Market Cap, P/E Ratio,
Div Yield and 52 Week Price Range.
3. “X” out 52 Week Price Range and Div Yield (Div. Yield is optional)
4. Click on “Add Criteria”; we will be searching for companies with ROA greater
than or equal to 25. I also like to add the 5 year average. By adding the 5 year
average, we have a better understand of its “normal” ROA. To do this go to Add
Criteria<Operating Metrics<Return On Assets. Set the range between 25
and 100
5. Set the P/E range between 5 & 20. On page 136, Joel Greenblatt does mention a
P/E less than 5 might indicate the previous year, or the data, might be unusual. I
never purchase a stock with a P/E greater than 20, even that might might be a bit
too high as most magic formula stocks have a P/E less than 15, but 20 will give us
some interesting results and sometimes better quality names. 2
Creating A Magic Formula Screen With Google Finance 3
Creating A Magic Formula Screen With Google Finance

Custom Magic Formula Screen Results

Below is a screen shot of the results produced. I circled the stocks that currently appear
on the official magic formula screen or that have appeared on it from recent memory. 4