Shares with the Magic Formula

It’s been 10 years since I started monitoring a screen based on the Magic Formula set out by hedge fund star Joel Greenblatt in his best selling book, The Little Book That Beats The Market. The 10-year stretch has finished with a flourish. Performance seems to have benefited substantially from the rally in value stocks late last year. 

Greenblatt’s Magic Formula really gets to the nub of what fundamental analysis of shares is all about: finding a favourable mix between quality and valuation. It is designed to be very straightforward, too. Greenblatt envisaged the screen as a tool for investors that were fairly disinterested but engaged enough to run the numbers and reshuffle their portfolios once a year.