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Posts Tagged ‘Magic Formula’

Man versus Magic Formula: Joel Greenblatt’s Value Investors’ Club vs his Little Book

Posted in Quantitative investment, Stocks, Strategy, tagged , , on May 22, 2012 | 1 Comment »

The only fair fight in finance: Joel Greenblatt versus himself. In this instance, it’s the 250 best special situations investors in the US on Joel’s special situations site valueinvestorsclub.com versus his Magic Formula. Wes Gray and crew at Empiritrage have pumped out some great papers over the last few years, and their Man vs. Machine: Quantitative [...]

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Equal Weight and Fundamental Indexing Beats The Market

Posted in About, Stocks, Value Investment, Quantitative investment, Behavioral economics, Strategy, tagged , , , on May 16, 2012 | 3 Comments »

Joel Greenblatt’s rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based [...]

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How to beat the market: Joel Greenblatt’s List of Four Things Not To Do

Posted in Stocks, Strategy, tagged , on May 10, 2012 | 1 Comment »

Investors struggle to implement the Magic Formula strategy for behavioral reasons. They take a market beating model and proceed to underperform. Greenblatt found that a compilation of all the “professionally managed” accounts earned 84.1 percent over two years against the S&P 500 (up 62.7 percent). A compilation of “self-managed” accounts over the same period showed a cumulative return of 59.4 percent, losing [...]

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Joel Greenblatt on how and why investors struggle to follow the Magic Formula

Posted in Stocks, tagged , , , on May 9, 2012 | 9 Comments »

Yesterday I looked at James Montier’s 2006 paper The Little Note That Beats The Market and his view that investors would struggle to implement the Magic Formula strategy for behavioral reasons. The Magic Formula is a logical value strategy, it works in backtest, and, most importantly, it seems to work in practice, as this chart [...]

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James Montier on why investors struggle to follow the Magic Formula: Cognitive Biases and Behavioral Errors

Posted in About, Stocks, Behavioral economics, Strategy, Enterprise Value, Enterprise Multiple, tagged , , , on May 8, 2012 | Leave a Comment »

In his 2006 paper, “The Little Note That Beats the Markets” James Montier backtested the Magic Formula and found that it supported the claim in the “Little Book That Beats The Market” that the Magic Formula does in fact beat the market: The results certainly support the notions put forward in the Little Book. In all [...]

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How to beat The Little Book That Beats The Market: An analysis of the Magic Formula

Posted in About, Stocks, Warren Buffett, Behavioral economics, Strategy, Enterprise Multiple, tagged , , , , , , , on May 7, 2012 | 9 Comments »

Since Joel Greenblatt’s introduction of the Magic Formula in the 2006 book “The Little Book That Beats The Market,” researchers have conducted a number of studies on the strategy and found it to be a market beater, both domestically and abroad. Greenblatt claims returns in the order of 30.8 percent per year against a market [...]

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An examination of the “Profit and Value” strategy

Posted in About, Quantitative investment, Stocks, tagged , , , on June 21, 2011 | 25 Comments »

The excellent Empirical Finance Blog has a superb series of posts on an investment strategy called “Profit and Value” (How “Magic” is the Magic Formula? and The Other Side of Value), which Wes describes as the “academic version” of Joel Greenblatt’s “Magic Formula.” (Incidentally, Greenblatt is speaking at the New York Value Investors Congress in October [...]

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