What is it?: 00:23
How does it work?: 01:01
Pros and Cons: 02:17
Website and Portfolio: 03:16
When to use it?: 05:18
Magic formula investing refers to a rules-based, disciplined investment strategy that will teach you a relatively simple and easy-to-understand method for value investing.
A backtest of market performance between 2003 and 2015 found that the magic formula strategy had annualized returns of 11.4%, compared with 8.7% from the S&P500.
Put simply, it works by ranking stocks based on their price and returns on capital.
Developed by Joel Greenblatt—an investor, hedge fund manager, and business professor—the formula applies to large-cap stocks. He has provided a lot more detail in the book “The Little Book That Beats The Market”
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