Greenblatt’s Magic Formula Strategy: Methodology, Backtest, Performance, Investment Returns

The Magic Formula Strategy, popularized by Joel Greenblatt’s book The Little Book That Beats the Market, has received mixed reactions from the stock market. Some investors have reported positive results using the strategy, while others criticize it for lacking a solid theoretical basis and not taking into account company-specific factors. Let’s find out what the Magic Formula strategy is about.

The Magic Formula strategy is a stock selection method popularized by Joel Greenblatt’s book The Little Book That Beats the Market. It involves ranking companies based on two factors: a high return on capital and a high earnings yield. The companies with the best combination of these two metrics are considered the best investments. The strategy aims to find undervalued companies with strong financials that have the potential for high returns over the long term.

In this post, we take a look at the Joel Greenblatt Magic Formula strategy. We provide you with backtests, investing results, and performance at the end of the article.

Unlocking the Power of the Joel Greenblatt Magic Formula Strategy

After more than 25 years of investing professionally and after 9 years of teaching at an Ivy League business school, I am convinced of at least two things:

1. If you really want to “beat the market,” most professionals and academics can’t help you, and

2. That leaves only one real alternative