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Joel Greenblatt's Magic Formula

Value Investing Read more.

CAGR

Compound Annual Growth Rate

Beta

Volatility Compared to S&P 500

Total Return

1-Year Avg.

3-Year Avg.

10-Year Avg.

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Investment amount

$10,000

Investment range

15 years

Total return

undefined%

Investment worth

Strategy Formulas & Filters

Formulas
Filters

Earnings Yield

Calculates the earnings yield by dividing EBIT by enterprise value to gauge operating profitability relative to market valuation.
Weight = 50%

Return on Capital

Determines return on capital by comparing EBIT to the sum of fixed assets and adjusted working capital.
Weight = 50%

Trading Model

Purchase Model

Purchase 3 stocks every 3 months until portfolio size reaches 24.
Rebalance target: 30%.
Reinvest proceeds from sales every 3 months.

Selling Model

Hold the stock for a maximum of 2 years.

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Strategy Information

"The Magic Formula" is a value stock investing strategy Greenblatt developed as a Managing Principal at Gotham Asset Management.

"The Magic Formula" acts as a stock screener to identify companies that are both high in quality and low in price. It simplifies the investment decision-making process by focusing on two key factors: return on capital (ROC) and earnings yield. By focusing on return on capital and earnings yield, Greenblatt's formula aims to identify companies with strong fundamentals that may be temporarily undervalued.