Joel Greenblatt is one of the best investors in the world
Between 1985 and 2005, his Magic Formula compounded on average with 33% (!) per year
Today, I'll teach you everything you should know about the Magic Formula:
Between 1985 and 2005, his Magic Formula compounded on average with 33% (!) per year
Today, I'll teach you everything you should know about the Magic Formula:
1. In 2006, Greenblatt wrote a book called The Little Book That Beats The Market.
He wanted to explain investing so simply that even his kids could understand it.
The key idea:
Buy good companies at cheap prices.
He wanted to explain investing so simply that even his kids could understand it.
The key idea:
Buy good companies at cheap prices.
2. In his book, he introduces The Magic Formula.
Between 1988 and 2004, this simple formula returned 33% annually.
Way more than the average investor.
But how does it work?
Between 1988 and 2004, this simple formula returned 33% annually.
Way more than the average investor.
But how does it work?
3. The Magic Formula works in 8 steps:
📌 Pick your investment universe
📌 Calculate Earnings Yield for each company
📌 Calculate Return on Capital
📌 Rank all companies by both metrics
📌 Buy the top-ranked ones
📌 Rebalance once a year
📌 Repeat for at least 5 years
📌 Pick your investment universe
📌 Calculate Earnings Yield for each company
📌 Calculate Return on Capital
📌 Rank all companies by both metrics
📌 Buy the top-ranked ones
📌 Rebalance once a year
📌 Repeat for at least 5 years
4. It can beat the market.
But… there’s a catch.
Imagine this:
You follow the Magic Formula and buy small, unknown companies.
After 2 years, your return is -28%.
Meanwhile, the S&P 500 is up +15%.
Would you stick with the strategy?
But… there’s a catch.
Imagine this:
You follow the Magic Formula and buy small, unknown companies.
After 2 years, your return is -28%.
Meanwhile, the S&P 500 is up +15%.
Would you stick with the strategy?
5. That’s the real test.
Staying disciplined when things look bad.
Greenblatt says:
“Most investors won’t (or can’t) stick with a strategy that hasn’t worked for several years in a row.”
Staying disciplined when things look bad.
Greenblatt says:
“Most investors won’t (or can’t) stick with a strategy that hasn’t worked for several years in a row.”
6. The Magic Formula works.
But only if you work too by staying patient, rational, and consistent.
But only if you work too by staying patient, rational, and consistent.
Joel Greenblatt is a stock market genius. Everyone can lear from him.
How? Start with this summary of ALL public writings: compounding-quality.kit.com/e3f59a4723
How? Start with this summary of ALL public writings: compounding-quality.kit.com/e3f59a4723
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