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Old 05-31-2010, 08:28 AM   #21
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Originally Posted by VirginiaTransplant View Post
The guy who wrote it basically followed your formula through the stinking rich part.

Google 'Joel Greenblatt.'
I had no idea book sales were that lucrative...

Numbers is hard.

Retired in 2005 at age 58, no pension

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Old 05-31-2010, 09:06 AM   #22
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Greenblatt's Magic Formula is not off the wall, it is based on investing reality. It does appear to be highly simplified, but sometimes simple things work.

It's basically a dual screen-one for return on invested capital, the other for inverted PE. You want a high ranking on each factor.


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Old 06-02-2010, 11:59 AM   #23
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Originally Posted by MasterBlaster View Post
Do you have a link to the magic formula - or is that a well kept secret ?
We add a dash of X, and a pinch of Z...

Originally Posted by freebird5825 View Post
If you bring candy to school, you gotta share.
Want some candy, little girl?
Have Funds, Will Retire

...not doing anything of true substance...
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Old 06-12-2010, 07:13 AM   #24
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I don't think the approach is unreasonable, and I don't think it would be much more risky then owning a basic managed fund (assuming the investor has some understanding of proper diversification). Whether it will "beat the market" is, of course, impossible to say. Things that have worked well in the past have a way of disappointing in the future. But for people who like to take the wheel and drive, this seems like a far better approach than the typical "beat the market" strategy.
Retired early, traveling perpetually.
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Old 07-25-2011, 05:52 PM   #25
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SO and I are strict indexers. The most important things for us are wide global diversification and the lowest costs possible.

That said, I'm interested in using Joel Greenblatt's magic formula to pick small cap value stocks. The formula will pick companies that are earning well and are cheap. I would only use it in lieu of 10 to 20% of our portfolio. 10% of our port is in US small caps and another 10% in non-US small caps.

This is what I'm thinking. Start with say 10% of port in either VB or SCHA. Run the MF screen one a week for 30 stocks with some market cap parameter -- say 150M. Then check every single one for the MF's cap rating. Only buy the stocks with a CAPS rating of 5. Every stock you pick would eat up 1/20th of the 10% allotment so a full port would have 20 stocks.

You would sell the stock when its CAPS rating goes to 3.

The main problem with the magic formula is that there are too many transactions. If one could figure out a way to cut down drastically on those transactions, then the strategy is very viable.

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