![]() and the magic formula is a subset of value investing.value investing is not popular to begin with because it requires hard work to do it properly.The argument is that the book is a best seller so more people know about it, and it has become a crowded strategy now. There's been a lot of discussion about whether the magic formula has lost its touch. However, the Old School Value version of the Magic Formula produced a 13.74% CAGR which easily beats the market return of 0.9% over the same period. It's not the 30% claimed in the book or the 18.57% return. I create a close variant to the original Magic Formula to compare it side by side along with the market. The original magic formula numbers first. Joel Greenblatt's magic formula was previously tested on old school value with a heavy dose of skepticism, but numbers don't lie. If I plug my estimates into the Magic Formula, and it comes out cheap, that's good. The idea of the magic formula is to provideĪ long-term investment strategy designed to help investors buy a group of above-average companies but only when they are available at below-average prices. In his book, The Little Book that Beats the Market, Greenblatt explains his magic formula method on how to buy mispriced stocks with top earnings yield and high ROIC. Joel Greenblatt's Magic Formula Approach - Keep it Simple He points out that Buffett's success is due to his unique spin on Graham's thinking and philosophy. This follows closely Graham's philosophy of value investing.Īs an educator and a strong advocate of learning, Greenblatt believes in being open-minded to new ideas. He argued that if you don't know the fundamentals you will lose. Betting with just a good story and not knowing the facts will only cost money. However, Greenblatt realized that Lucky performed best in short races and this story provides a glimpse into Greenblatt's mechanical approach to investing.Īt 15 years old Joel took this lesson to heart. He was a sure bet because he was fast in all the previous races. He was confident in a dog named Lucky which had a 99-1 chance of winning. When Joel Greenblatt was 15 he had the chance to make some bets in a dog racing circuit. Lessons Joel Greenblatt After Gambling Money in a Dog Race Let's dive into some details and get to know Greenblatt a little better. We know all about the magic formula, but investors don't really know much about Greenblatt himself of Gotham funds. ![]() Then throw in some additional accolades like being an adjunct professor at Columbia University and being classified as a superinvestors at such a young age. The mastermind behind the simple and effective magic formula, holder of one of the best 10 year investment records at 40-50% CAGR.Ĭonsidering that Greenblatt describes himself as self-taught in the ways of value investing after reading Graham's quant based investing strategies, his results are even more impressive.
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