Is Gurufocus still following JG>?  Continue Reading »

Author and hedge fund manager Joel Greenblatt will soon launch 6 value investing mutual funds based on his magic formula investing system which he described in The Little Book That Beats The Market and his recently released The Little Book That Still Beats The Market.

According to the SEC filing, Greenblatt plans to launch 6 mutual funds all based on the magic formula and his recent research in which he has done on international value stocks (videos below). The mutual funds that will be released are:  Continue Reading »

Joel Greenblatt appeared on CNBC this morning to discuss his new book The Little Book That STILL Beats The Market. The book is an updated version of The Little Book That Beats The Market which presents a formula for finding great businesses (high ROC) at discounted prices (earnings yield). Since the original "Little Book" was released, a small following has developed great interest in the results that could be obtained by optimizing the formula. To those who have stuck with the formula, The Little Book That Still Beats The Market provides updated results along with a section of why the magic formula system has not worked as well as many had hoped, which was mainly due to the recent stock market drops.

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Many people frequent this site profited from Professor Joel Greenblatt’s simple and beautiful investment method call “Magic Formula Investing”.

The recent move from Greenblatt is that he launched a hedged fund called Formula Investing Hedged Value Strategies, LLC., with $15.58 million asset under management in total.  Continue Reading »

It has been almost 5 years since value investor Joel Greenblatt introduced The Little Book That Beats The Market. The book highlights a simple value investing strategy which focuses on finding great companies at attractive prices. To find great companies the Magic Formula uses Return On Capital (EBIT/ (Net Working Capital + Net Fixed Assets) a simple metric that measures how well a company is using its capital to generate returns. The other metric used in the Magic Formula is Earnings Yield (EBIT/Enterprise Value), which measures the company's yield versus a comparable rates such as a 10 year treasury yield to determine if the stock is undervalued or not. For example, say current 10 year Treasury yields are at 2%. If a company has an earnings yield of 12%, the stock would be attractive. In cases where treasury yields are low when compares to historical numbers, Joel Greenblatt recommends using an default 6% yield to replace that low yield. Either way, if the earnings yield is 12% vs. 6%, the stock would be considered for purchase.

A couple of events have occurred since the release of the original "Little Book." First, the website that accompanied the book has been completely re-designed. With the new look came a couple of changes such as the removal of earnings yield and return on capital which allowed individual investors to see why the stock was classified as "magic formula".  Continue Reading »

In an interview with Forbes Joel Greenblatt discusses his book The Little Book That Beats the Market and his magic formula.

Some main points from the interview:  Continue Reading »

Joel Greenblatt appeared on Steve Forbes’s Intelligent Investing program this week. The author of The Little Book That Beats the Market (Little Books. Big Profits) has been working on expanding the offerings for his business venture Formula Investing. The book illustrated a stock investment method that selects stocks based on the combination of earning yield and return on equity.

Individual investors can use the investment method by signing up with Greenblatt’s business venture FormulaInvesting.com.  Continue Reading »

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One of the most common questions received here at MagicDiligence is "how many stocks should comprise my portfolio?". This may, in fact, be one of the most common questions that individual investors around the world ask. Let's take a look at the reasons behind diversifying stock positions, investigate the answers and actions of some well-known investors, and then see what the Magic Formula Investing strategy has to say about the topic. In the process, hopefully we can come to a conclusion on a good number of stock positions to be sufficiently diversified (without over-doing it).So, first, why diversify at all? The simple answer is to reduce risk. In investing, there are two basic categories of risk, which we will call "macro risk" and "micro risk". Macro risk are systematic concerns that can affect all stocks negatively. Examples of this would be recessions, military conflicts, inflation, high interest rates, and so forth. Micro risk, on the other hand, applies only to a single company or a number of related companies. For example, the FDA's loss-of-smell warning on Matrixx Initiatives' (MTXX) Zicam nasal products caused that stock to plummet 75%, but did not really affect any other stocks. These micro risks can also affect a handful of players in a particular industry or geographic area.

Holding a number of different stock positions cannot protect you against macro risk, but it can certainly help protect from micro risk. Going back to the MTXX example, if you were an employee there who held all of your 401(k) in company stock, your retirement nest egg would have been largely wiped out. On the other hand, if you had diversified evenly into just 2 stocks, the hit to MTXX would have brought your portfolio down "just" 38% (assuming a constant value for the other holding, of course). If you held a portfolio of 10 stocks, your total portfolio value would be down just 7.5%. Since no investor has a perfect crystal ball into the future, diversification is an important protection against micro risk.  Continue Reading »

For the past couple weeks, I’ve written to you about several fundamentally attractive stocks based on Joel Greenblatt’s Magic Formula Investing (MFI) strategy. But what exactly is Magic Formula Investing, how does it work, and – more importantly – does it work?

In this article, we’ll briefly go over the strategy’s philosophies, implementation, and past results. Anyone interested in going further should pick up a copy of Greenblatt’s book The Little Book That Beats the Market. It’s the “Bible” of MFI.  Continue Reading »

Good guy.  Continue Reading »

Great investor. One of the best.  Continue Reading »

Joel Greenblatt author of "The Little Book that Beats the Market" was interviewed by Morningstar.com to discuss his magic formula and value investing.

Notes:  Continue Reading »

It just got even easier to follow the investment advice put forth in Joel Greenblatt's "The Little Book That Beats the Market."

Greenblatt's firm, Formula Investing LLC, is now offering to manage investors' money using the "magic formula" strategy made famous in "The Little Book That Beats the Market."  Continue Reading »

In the past two days, Hedge Fund Manager and Professor Joel Greenblatt appeared to all the major media to promote his magic formula investing and his investment management firm www.formulainvesting.com.

This time, we found him interviewed by Fox Business News:  Continue Reading »

Joel Greenblatt, of “Magic Formula” fame, gave a rare interview yesterday on CNBC. The interview had Greenblatt talking about the components of his magic formula as well as recapping its phenomenal performance to date. What Greenblatt stressed multiple times in the interview is that the formula selects many stocks that are currently out of favour with the market, and as such it is important to implement the formula in the context of a “basket”. That is, as Greenblatt is not looking into each company on his screen individually, he recommends buying a basket of 25-30 stocks and expects that on average the basket will outperform. The historical outperformance of Greenblatt’s formula can not be disputed, but I truly believe that the diligent value investor can do even better. This is what I try to accomplish through the individual company analysis I conduct on this site.

The two components of Greenblatt’s formula are ‘return on capital’ and ‘earnings yield’, that is the formula screens for stocks that are performing top of class in terms of return on capital but which are trading at a cheap valuation (high earnings yield means low price to earnings). I think this makes perfect sense, as a first step. Conducting such a screen allows the value investor to narrow the thousands of stocks available down to a pre-qualified list of candidates. What I say is, why buy the basket? A diligent investor can look into each potential investment from both quantitative and qualitative points of view in order to arrive at a fair estimate of intrinsic value. The investor will then only buy the shares of companies which are trading at a significant discount to this estimated value. Sure it’s a lot more work than the “set it and forget it” mentality of the formula, but the results should be worth it.  Continue Reading »

Joel Greenblatt appeared on CNBC this morning. Here are quick notes I took.

• No reason why value investing wouldn't be great right now
• Emotion is the biggest problem for many investors
• There are always undervalued companies
• The Magic Formula continues to work, and likely will continue to work

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Joel Greenblatt's "magic formula investing" strategy trounced the Standard & Poor's 500 index during the 10-year period ending June 30.

An investor who started with $10,000 on July 1, 1999, and used the magic formula method ended up with $29,400, according to the updated results published this week. That's a 194 percent total return, or 11.4 percent annualized. The figures are net of a 1 percent annual management fee.  Continue Reading »