A New Magic Formula? How is the old one working?
Joel Greenblatt was made famous by his so-called “Magic Formula” for stock picking, which he describes in his book, “The Little Book That Beats The Market”. Greenblatt claims in the book that by purchasing the market’s top 30 stocks that conform to the formula with a high earnings yield and a high return on capital and at the same time shorting the market’s most inefficient and expensive stocks, he beat the S&P 500 96% of the time and achieved an average 17 year annual return 30.8%.
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