In Brief Magic Formula Investing
is a value investing strategy based on buying 20-30 "good, cheap companies" defined as having the best available combined ranking in terms of earnings yield and a return on capital.
A widely respected hedge-fund manager, Joel Greenblatt
, started as a value purist but was influenced by Warren Buffett
's view about growth being part of the value equation. He founded Gotham Capital, a fund which apparently returned over 40% annualized from 1985 to 2005. By 1995, it had returned all money to its outside investors. He has authored two books, "You Can Be a Stock Market Genius
" and New York Times bestsellier, “The Little Book That Beats the Market,”
and is also adjunct professor at Columbia University Business School. Greenblatt espouses MFI as a do-it-yourself version of the approach he has used while amassing his investment track record. With the “Little Book,” Greenblatt wanted to write a book his children could read and learn from. The main point Greenblatt makes is that investors should buy good companies at bargain prices. Continue Reading »