Magic formula investing is an investment technique outlined by Joel Greenblatt that uses the principles of value investing. For those of us who live in the real world, it’s way past time to realize that a “magic formula” is inherently an illusion. It no longer works because it could never actually work. There will never be a simple, foolproof, and low-risk way to beat the market. That’s magic; that’s a fairy tale. Greenblatt should have known better.

In 2005, Joel Greenblatt published a book called The Little Book that Beats the Market. Its explicit aim was to “explain how to make money in terms that even my kids could understand (the ones already in sixth and eighth grades, anyway).” Although it used language and examples that were aimed at children, it was widely read by folks of all ages. The first five chapters, before Greenblatt gets into his investment strategy, comprise an excellent introduction to value investing. Clearly written, easy to understand, it’s principled and right. One time gains can artificially inflate the earnings yield of a company, and allow it to pop up on the list when it really shouldn’t belong because of a one time event.

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I used to be an editor, and I doubt that the redundant phrase “future prospects” would have evaded my red pencil.) Indeed. Greenblatt doesn’t consider growth at all, and the market has been especially good at predicting revenue growth lately: the correlation between price momentum and future revenue growth is astonishing. Many of the companies that pass the Greenblatt screen have low future sales growth. For example, if you had chosen the top 100 companies in September 2018, the median TTM sales growth of the surviving companies eighteen months later would have been –4.09%. But if you had chosen all 3,500 companies, regardless of their EBIT, their median TTM sales growth eighteen months later would have been 2.42%. What Greenblatt offers is a structured, diversified investment program that should beat the market (by how much though, who knows). It is better than speculating, which is what most investors tend to do. I tillegg er første del av boka litt dryg hvis man kjenner prinsippene rundt aksjehandel og markedspsykologien sånn noenlunde. Det er som å være ferdig med grunnskolen, og plutselig skal du tilbake til å høre på "Per har to epler. Så får han et eple til" osv.

Next, here are the three steps suggested by the author Joel Greenblatt in his book ‘the little book that beats the market’ to find companies for investment: i am a pure quant/intraday (hedge4you.com), who started to invest on fundamental analysis for long term.investments.. If anyone—I don’t care if he’s the pope or she’s the queen—tells you something like this, run! There’s no such thing as a magic formula because there’s no such thing as magic. Greenblatt’s entire book is a fairy tale. Hocus Pocus Any time a book claims to beat the market, people line up to crap all over it. I mean, isn’t this just good ole’ Value investing? Traditionally this is done with other ratios like Book-to-Market ratios. Again, the data seems to support that the Little Book method does better than other ratios.The author is really humorous as well! Seriously sounds like he’s messing around with their kids while teaching them some important things, and thereby, the book wouldn’t feel boring at any point in time. I highly appreciate the author’s funny narration, and it genuinely does seem like the book and the formula taught in the book are extremely valuable and helpful if one is willing to be patient. how one can invest in companies which just continue to be burdened by debt, producing negative earnings just because analyst or balance sheet show you the promess of increasing earnings and/or sales!!!!

There’s a blogger in Fort Worth who has chronicled his adventures using the magic formula. His latest post reads, “My MF Portfolio has lost thousands since early 2017, while the S&P 500 Index has risen nearly 35%.” I would like to extend him my sympathies. Why Greenblatt’s Magic Formula Stopped Working Luo, Min (2019). "Case Study of Magic Formula Based on Value Investment in Chinese A-shares Market". Advances in Computational Science and Computing. Advances in Intelligent Systems and Computing. Vol.877. pp.177–194. doi: 10.1007/978-3-030-02116-0_22. ISBN 978-3-030-02115-3. S2CID 158778392.

I appreciate the report that something doesn't work anymore. In academia, if you do not have results supporting that X causes Y, the research results are unlikely to be published. That wastes a lot of time by other researchers trying to show that X causes Y, because they don't know that it has been demonstrated that X does not cause Y. the result is that, despite i get a huge dividend compared toSP500, my book lag awfully compared to sp500!!! I'm far from a financial expert (don't ask me about my own portfolio... I tend to leave money in CDs and mutual funds and forget about it). However, I have done a bit of reading, and know enough to smell BS or something that has the ring of truth. And the formulas made a lot of financial sense too. They were common-sense formulas that were transparent and fair. There seemed to be nothing at all up Greenblatt's sleeve - no complicated market-timing mechanisms, no opaque and complex accounting formulas. Just one numerator and two denominators, both easy to grasp and standard in the financial literature.

Why was Greenblatt’s system successful for so long, and why has it now failed spectacularly for ten years running?Positivt: prinsippene er gode. Enkel og grei formel som bunner ut i at man skal kjøpe kvalitet til en billig penge, for så å vente til resten av tomsingene på markedet skjønner at aksjen er kvalitet. For det vil de skjønne, men det kan ta litt tid. Den er grei. the problem today is that all 'investors' behave like biotech buyer despite there is no magical touch in their buy list. The [magic] formula is simple, it makes perfect sense, and with it, you can beat the market, the professionals, and the academics by a wide margin. And you can do it with low risk. The formula has worked for many years and will continue to work even after everyone knows it.” Joel Greenblatt