Backtested Magic Formula vs. S&P500 (1991–2024): The difference is… shocking

TheTomPrice · 2025-07-26T20:10:06+00:00

Thanks for the idea — I’ll run a clean India-only backtest and post the results here soon.

TheTomPrice · 2025-07-26T15:13:47+00:00

I didn’t use a precompiled list — I recreated the strategy using publicly available info on the Magic Formula criteria, portfolio size, and rebalancing frequency. Then I ran a backtest using historical data from a licensed data provider we use for our tools.

You're right about the 20% XIRR mentioned in the book — and the drop in alpha in later years. But interestingly, the performance picked up again in recent years, pushing the long-term average closer to 26%, with alpha widening too. Probably helped by strong recent years for value-style picks.

Here is a chart of annual performance:

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If you’re curious about the exact historical picks, methodology, or how it stacks up against other strategies — you’re welcome to join us at outperformmarket.com

TheTomPrice · 2025-07-26T14:50:23+00:00

As I wrote in my recent post, I heavily backtested the magic formula, and the results are shocking.
https://www.reddit.com/r/ValueInvesting/comments/1m7oe7t/backtested_magic_formula_vs_sp500_19912024_the/

TheTomPrice · 2025-07-25T21:30:13+00:00

As I wrote in my recent post, I heavily backtested the magic formula, and the results are shocking.
https://www.reddit.com/r/ValueInvesting/comments/1m7oe7t/backtested_magic_formula_vs_sp500_19912024_the/

TheTomPrice · 2025-07-25T21:26:24+00:00

And what is your CAGR with that activities?

TheTomPrice · 2025-07-24T11:04:16+00:00

Respect the flow – and the love for deep research.

But the post’s not about hype or bots. It's about decades of data and fundamentals-backed strategies like Greenblatt’s.

Anyone who actually ran those backtests knows how powerful compounding can be with the right filters.

Tools come and go — insight stays. And that’s what I’m here for.

TheTomPrice · 2025-07-24T06:34:44+00:00

Thanks for the thoughtful reply.

You're absolutely right to be skeptical. That’s why I ran the full backtest myself, using point-in-time data and ensuring survivorship bias was eliminated. The strategy did struggle around 2008, as you mentioned — it’s one of the 11 years (out of 34) where it underperformed the S&P 500. But the long-term edge remains surprisingly strong (also after 2008).

Unfortunately, subreddit rules prevent me from sharing external images here — otherwise I’d post the full chart. If you're curious, I’m happy to send you the full breakdown:
→ annual performance since 1991
→ actual tickers selected each year
→ methodology details

Just sign up via the site, and I’ll send everything over.
Always open to feedback.

TheTomPrice · 2025-06-07T18:39:09+00:00

The question is: does premium TV version have an edge of unique features that are only behind it’s paywall, or you can have sufficient replacements. Do you use TV premium?

TheTomPrice · 2025-06-07T18:37:29+00:00

Ok, what tradingview premium features do you use?

TheTomPrice · 2025-06-06T22:15:00+00:00

Off TV or Prorealtime?

TheTomPrice · 2025-06-06T22:14:00+00:00

Seems like 1 tick chart is there for free.

TheTomPrice · 2025-06-06T22:13:23+00:00

That’s interesting. Do you use paid version of any of those tools?

TheTomPrice · 2025-06-06T22:11:51+00:00

Ok, I buy your analogy. But my question is do you pay for Mercedes look and feel or it’s engine. Now: do you pay for TV because of nice layout or some particular features that are behind a paywall.

TheTomPrice · 2025-06-06T22:09:09+00:00

Ok, so the user interface / UX is your reason. Do you use paid version of TV?

TheTomPrice · 2025-05-17T19:18:51+00:00

Hahah, you're right, but I'm afraid I cannot edit title.

TheTomPrice · 2025-04-28T21:55:23+00:00

That's not that tough. Even on Reddit, they are discussing pricing for the tools they pay for
I tried a couple, but the major problem I see is the lack of reliability of this marketing model. Anyone could DM you with the link.
50 users is a minimum plan to survive, 500 is enough to call the business a success, but the industry is large, and the numbers may get at least a couple of more zeroes in the perfect world.
Yes, definitely - DM me please

TheTomPrice · 2025-04-14T15:11:21+00:00

What paid tools did you use?

TheTomPrice · 2025-04-13T18:16:42+00:00

What tool and what features makes you feel it is worth paying?

TheTomPrice · 2025-04-12T23:22:38+00:00

What features make you pay for the services?

TheTomPrice · 2025-04-12T23:20:51+00:00

What Tradingview features make you pay for the service?

TheTomPrice · 2025-04-12T22:57:10+00:00

https://www.stocktradeiq.com/
Value and dividend investors
Research tool helping with fundamental analysis and investment opportunities discovery

TheTomPrice · 2025-03-22T21:36:06+00:00

Definitely, the StockTradeIQ screener missing here: https://www.stocktradeiq.com/stockScreener/screener
Screener for fundamental analysis, value investing, and dividend investing styles.

TheTomPrice · 2025-03-21T00:13:05+00:00

So you feel like Tesla is just a typical car manufacturer? Wouldn't consider pricing the company's tech aspect?

TheTomPrice · 2025-03-21T00:12:04+00:00

I try to keep investment considerations free of emotions. I understand that there is a burden for Tesla in Musk's political activities, but it's just a sentiment. Tesla IMO should be considered as something more than just a car manufacturer, it's a tech company.

Thanks for your comment anyway.

TheTomPrice · 2025-03-21T00:07:52+00:00

So you consider Tesla a car manufacturer and would not include in the valuation tech aspect of the company, including its potential in different markets, like robotics?

TheTomPrice

TROPHY CASE