So we tested the strategy in Europe over the 12 year period from June 1999 to June 2011. Magic Formula investing also works outside the USAĭoes the Magic Formula also work outside the USA? As you know, this happens to all investment strategies.Ĭlick here to get Magic Formula ideas where you invest *Market Average return was the return of an equally weighted index of the 3,500-stock universe Joel used when testing the Magic Formula.Īs you can see the results were astounding with an average return of 33% over 16 years.īut the formula does not always work, as mentioned and explained by this investor. Source: The Little Book That Still Beats the Market 2006 These were the original returns from a Magic Formula investment strategy from the book The Little Book That Still Beats the Market: The best Magic formula company is thus has the lowest Magic Formula rank (the lower the better). To get the Magic Formula rank the ROIC rank and earnings yield rankings are added together. The formula then ranks the companies on ROIC (where 1 is the company with the highest ROIC), and by earnings yield (where 1 is the company with the highest earnings yield).
It does this by looking for companies with a high earnings yield (companies that are undervalued) and a high return on invested capital ( ROIC) (quality companies). The Magic Formula helps you find good quality companies that are trading at an attractive price. It is also the book that got me started with quantitative investing in 2006. In this article you can see the summarised results of all the back tests of the Magic Formula investment strategy I could find.Īs you know the Magic Formula investment strategy was developed by Joel Greenblatt and described in his excellent book called The Little Book that Still Beats the Market.
0 kommentar(er)
