Twelve months ago we begain tracking the Magic Formula Index. Since December 13, 2006, the Index is up 2.8% versus 5.3% for the Standard and Poor's 500 Index. Hence, the Magic Formula did not produce magic. It underperformed the S&P 500 Index by 2.5%.

A year ago we introduced Joel Greenblatt's book "The Little Book That Beats The Market". In his book, Greenblatt shared his success with the Magic Formula.

Recall that we started with a notional $100,000 investment in a basket of 25 stocks. The investment is now worth $102,844. The Standard and Poor's 500 Index closed today at 1486.59 (the S&P 500 Index closed on December 12, 2006 at 1411.56).

In our basket of stocks, 14 were up and 11 were down. The best performing stock was Fording Canadian Coal Trust (FDG), up 81.5%. The worst peformer was Mannatech Inc. (MTEX) down 52.1%. Details of the Index, assuming today's closing prices:

• Aspreva Pharmaceuticals Corp. (ASPV), $19.70 vs. $25.77, (up 30.8%)
• Biovail Corp. (BVF), $21.00 vs. $14.73, (down 22.7%)
• Cavco Industries Inc. (CVCO), $34.41 vs. $35.78, (up 4.0%)
• EPIQ Systems Inc. (EPIQ), $10.50 vs. $16.78, (up 59.7%)
• Earthlink Inc. (ELNK), $6.42 vs. $6.76, (up 5.3%)
• Fording Canadian Coal Trust (FDG), $22.58 vs. $38.40 (up 81.5%)
• Freight Car America Inc. (RAIL), $53.39 vs.$35.17 (down 33.8%)
• Frontier Oil Corp. (FTO), $31.34 vs. $41.82 ( up 34.4%)
• Harvest Natural Resources Inc. (HNR), $10.21 vs. $12.54 (up 22.8%)
• King Pharmaceuticals Inc. (KG), $16.56 vs. 10.25 (down 38.1%)
• Korn/Ferry International (KFY), $22.30 vs. $19.71 (down 11.6%)
• Mannatech Inc. (MTEX), $13.46 vs. $6.18 (down 52.1)
• New Frontier Media Inc.(NOOF), $9.31 vs. $5.20 (down 35.1)
• OmniVision Technologies Inc. (OVTI), $14.59 vs. 17.40 (up 19.3%)
• PW Eagle (PWEI), $34.96 vs. 33.91 (down2.4%)
• Palm Inc. (PALM), $14.01 vs. $5.48 (up 3.4%, includes special dividend of $2,569.59)
• Pinnacle Airlines Corp. (PNCL), $10.34 vs. $15.71 (up 51.9%)
• PortalPlayer Inc. (PLAY), $13.40 vs. $13.48 (up .6%)
• True Religion Apparel Inc. (TRLG), $15.41 vs. $18.97 (up 23.1%)
• United Online Inc. (UNTD), $13.38 vs. $11.25 (down 10.0%)
• Vaalco Energy Inc. (EGY), $7.97 vs. $4.69 (down 41.2%)
• Valassis Communications Inc. (VCI), $16.44 vs. $12.40 (down 24.6%)
• Verigy Ltd. (VRGY), $18.06 vs. $26.69 (up 47.8%)
• ViroPharma Inc. (VPHM), $14.99 vs. $8.55 (down 43.0%)
• Western Refining Inc. (WNR), $27.17 vs. $27.29 (up 1.7%)

I still believe in the Magic Formula Index and will track it again over the next year. Look for a new set of stocks for the Index in the next post.

Pierre Cutler
The Sacramento Executive