The Magic Formula Investing Strategy is based on maximizing two value factors. Combining a high earnings yield and a high return on capital allows an investor to buy good companies with low valuations.
The Magic Formula Investing Strategy was developed by Joel Greenblatt and highlighted in his book The Little Book that Beats the Market.
The Magic Formula is designed to be easy to implement for all investors. Joel Greenblatt recommends that you rank all companies on return on capital and earnings yield. Both are necessary. Your goal is to buy good companies that are also cheap.
Magic Formula Investing outperformed the S&P 500 index by 18% annually over the 17-year back-test period. In addition, the Magic Formula continued to outperform the market in the five years after the book's original publication date.
You can read my full Book Review of The Little Book that Beats the Market by Joel Greenblatt on my website at www.DIYInvesting.org/LittleBook
You can also find affiliate links to purchase the book on my website's book review page. This helps support me continuing to produce content. Thank you for your support.
If you'd like to implement the Magic Formula Investing Strategy, I recommend you watch the next video in this playlist, "How to buy Joel Greenblatt's Magic Formula Stocks."
In that video, I explain how I built an index to track the performance of the Magic Formula investing strategy. You can buy that index at:
https://www.diyinvesting.or...... (see disclosure)
[Disclosure: If you buy my index of the Magic Formula, then I receive a small commission at NO additional cost to you. The commission is always $9.95 whether you buy my index/motif or build and manage your own. If you buy my index of the Magic Formula then $1 of that $9.95 goes to me. The remaining $8.95 is kept by the broker Motif Investing. I am NOT an affiliate of Motif Investing and they don’t individually endorse myself or this index.]
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