MagicDiligence now tracks 6M vs SPY because a simple momentum filter may help separate real Magic Formula opportunities from cheap stocks that are going nowhere. If a stock already looks attractive on value and quality, and it has also outperformed the S&P 500 over the last six months, that relative strength may be a useful sign that the market is starting to recognize the story.
Joel Greenblatt's Magic Formula already does two things well. It looks for stocks that are cheap on earnings yield and strong on return on capital. In plain English, it tries to find good businesses trading at undemanding prices.
That is a strong starting point, but it is not the whole job. A stock can rank well on the formula and still turn into a bad purchase because the business is weakening, the market sees risks the screen misses, or the stock just stays dead money for a long time.
If you want the fuller case for that problem, read Why the Magic Formula Needs One More Step. This article is the shorter follow-up: momentum may be that extra step.
When investors talk about momentum, they usually mean recent price strength. Value and momentum answer different questions. Value asks whether a stock looks cheap relative to the business. Momentum asks whether the market may finally be starting to agree.
That combination is what makes the idea interesting. A cheap stock with improving relative strength may be early in a rerating. A cheap stock with deeply negative relative strength may still be cheap for a reason.
Why We Track 6M vs SPY
The specific metric now shown on MagicDiligence is 6-Month Return vs S&P 500. We are not just asking whether a stock went up. We are asking whether it beat the market.
If a stock is up 8% while the S&P 500 is up 18%, that is still weak relative performance. If a stock is down 4% while the S&P 500 is down 12%, that is actually relative strength. Using vs SPY strips out some market noise and makes the reading more useful at a glance.
We use six months because it is a practical middle ground. Very short windows get noisy. Very long windows can get stale. Six months is long enough to capture a real move and short enough to still feel relevant.
Why This Fits MagicDiligence
MagicDiligence already adds a qualitative layer on top of the raw Magic Formula screen. Each stock gets a report built around the questions that matter most: are the earnings distorted by one-time items, is there fraud or short-seller smoke, is the balance sheet under stress, and are profits sitting at a cyclical peak? That process leads to the simple Pass and Fail verdicts the site is built around.
The most interesting setup is not just a statistically cheap stock. It is a stock that looks cheap on the formula, clears the qualitative report with a Pass, and is also showing positive relative strength versus SPY. That does not guarantee a winner, but it is a cleaner signal than value alone.
The opposite is useful too. If a stock screens well but fails the qualitative review and has ugly relative momentum, investors should probably be extra careful. Even when the verdict and the momentum reading point in different directions, that disagreement still tells you where to dig deeper.
In other words, momentum is not a substitute for diligence. It is another way to prioritize the list after the formula and the reports have already narrowed the field.
What About Holding For Only 6 Months?
Adding a momentum filter naturally raises another question: should these stocks be held for six months instead of twelve?
There is a reasonable case for testing that. Relative strength tends to be more useful over shorter holding periods, so a 6-month hold may be a cleaner way to evaluate whether the signal is adding anything. That is one reason MagicDiligence now tracks both 6-month and 12-month outcomes.
But there is a practical warning here. A shorter holding period means more turnover, and more turnover means more tax friction. If you are selling and replacing positions every six months in a taxable account, realized gains can pile up fast and eat away at the benefit.
That is why a higher-turnover version of the strategy is best treated as a tax-deferred account idea. If you want to lean more heavily on momentum, an IRA or similar shelter is the safer place to do it.
Why We Are Measuring It Instead Of Preaching It
There is real historical support for combining value and momentum. Several studies and strategy writeups show value-plus-momentum outperforming value alone. That is encouraging, but it is not enough by itself. Backtests are useful, not final.
So MagicDiligence is treating momentum as a testable hypothesis, not a slogan. The site now tracks how positive-momentum names and negative-momentum names perform across batches and across both holding periods. You can already watch that play out on the batch performance page.
That is the right way to handle a factor idea like this: measure it in the open and let the results speak.
How Readers Can Use 6M vs SPY
The simplest use is as a tie-breaker. If two stocks both look cheap and both have acceptable qualitative reports, the one with better 6M vs SPY may deserve more attention.
If a stock looks cheap but has sharply negative relative performance, that does not automatically make it a bad investment. It does mean investors should want a strong reason to disagree with the market.
That is the real value of the metric. It improves the questions. Better questions usually lead to better decisions.
Magic Formula investing works best when it stays systematic. MagicDiligence exists to add one more systematic layer of common sense. Tracking 6M vs SPY is part of that. It gives readers a simple way to spot relative strength, compare outcomes across time, and see whether momentum actually adds value when paired with the site's quantitative and qualitative filters.
If you want to see the latest names and their current 6M vs SPY readings, go back to the current MagicDiligence screen results.