Société Générale publishes a monthly update on the performance of several value orientated fundamental trading strategies across both developed and emerging markets. Last week I covered the bank’s top Graham & Rea deep value screen picks and today I’m taking a look at Société Générale’s Joel Greenblatt’s 'Magic Formula' screen.
Greenblatt’s formula uses a simple and systematic investing strategy based on a very understandable principle - that buying shares in cheap, good quality companies beats the market. Société Générale ranks companies by the average ranking based on return-on-capital (EBIT/(net working capital +net fixed assets) and earnings yield (EBIT to Enterprise Value). The 30 or so companies scoring most highly by this sum are then selected.
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