Here’s a quick way to improve the results of Joel Greenblatt’s Magic Formula


Long time readers know I am a big fan of the Magic Formula investment strategy developed by Joel Greenblatt in his excellent book The Little Book that Still Beats the Market. (Click picture for Amazon page)

As you may know the Magic Formula strategy is a pure strategy based on numbers.

This means that there are also a lot of junk companies that come up when you use the formula.

Companies with large once-off profits, high historical profits that may not be repeated due to a contract loss. You know what I mean.

I always thought that the already excellent returns of the strategy can be further improved by removing the companies the Magic Formula should not be selecting.

Doing this however takes a lot of time.

You have to look at the financial statements of the company and read annual as well as quarterly reports. Not just for one year but for the last few years to find out exactly what is going on in the business.

Because all of us are pressed for time I was really glad when I found someone that does exactly that.