Contents:

Table 3.1 3

Table 6.1 4

Table 7.1 5

Table 7.2 5

Table A.1 6

Table A.2 6

Step-by-step Instructions 7

Appendix: The Magic Formula 9

Education Websites 16

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 A F T E RWO R D TO T H E 2 010 E D I T I O N [155]

TABLE A.1 Updated Magic Formula Results Through 2009

[ 158] A F T ELargest
R W O R1,000
D TO T H E 2 010
Stocks LargestE3,500
D I T IStocks
ON
(Over $1 billion) (Over $50 million) S&P 500

then
1988divided all 29.4%
of those companies into deciles 16.6%
27.1% (10 per-
1989 30.0 44.6 31.7
cent1990groups) based
(6.0) on their ranking, 1.7 and we held (3.1) each
group
1991 for a year.51.5
So, the first group70.6of 250 stocks30.5was the
1992 16.4 32.4 7.6
highest
1993
ranked, followed
0.5
by Group 17.2
2 (the next best-ranked
10.1
2501994
stocks), all the
15.3 way down to Group 22.0 10 (250 companies
1.3

the1995
formula
1996
55.9
viewed
37.4
as overpriced 34.0
but
17.3
also in 37.6
bad
23.0
busi-
nesses).
1997 The results,
41.0 updated through40.4 the end of 33.4 2009,

appear
1998
1999
in Table A.2.
32.6
14.4
25.5
53.0
28.6
21.0
Once again,12.8Group 1 beats Group
2000 7.9 2, Group(9.1)2 beats
Group
2001
2002
3, Group 3
38.2
(25.3)
beats Group 4, continuing
69.6
(4.0)
in order all
(11.9)
(22.1)
the2003
way down to50.5Group 10 (which79.9 actually loses28.7 a bit of
money).
2004
Certainly,
27.6
based on these 19.3results, the magic10.9
for-
2005 28.9 11.1 4.9
mula
2006 appears to18.1be very powerful.28.5It not only seems 15.8 to
work
2007 for the top-ranked
7.1 stocks, but
(8.8) its rankings 5.5 seem
2008 (38.8) (39.3) (37.0)
to have
2009 meaning throughout
58.9 the total
42.9 universe of stocks.
26.5
19.7% 23.8% 9.5%

rare 10-year periods over which the S&P 500 index was
TABLE A.2 Annualized Return (1988–2009)
actually down. According to our backtests, on the other
hand, the formula
Group 1 managed to earn 25515.2%
percent during this
same periodGroup 2 than tripling our money!).
(more 12.7 That’s a 13.5
Group 3 12.1
percent annualized return during a 10-year period when the
Group 4 11.5
S&P index was actually down 0.9 percent per year.
Group 5 10.7
Group 6 10.2
Group 7 8.8
Group 8 7.1
Group 9 4.1
Group 10 (0.2)

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 Step-by-Step Instructions

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 Appendix: The Magic Formula

IMPORTANT NOTICE:  This appendix is not required reading. To utilize the

magic formula strategy successfully, you must understand only two basic
concepts. First, buying good companies at bargain prices makes sense. On average,
this is what the magic formula does. Second, it can take Mr. Market several
years to recognize a bargain. Therefore, the magic formula strategy requires
patience. The information that follows in this section is merely additional
commentary on these two points. This appendix includes background infor-
mation about the magic formula for those with a higher level of understanding
of financial statements.

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 Some web sites you might consider:
successforall.net
allianceforschoolchoice.com
schoolachievement.org

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