Joel Greenblatt ran Gotham Capital for many years, producing a phenomenal 40% annual return. He has also written two books, the latest of which is the companion explanation to the "Magic Formula" investing site (although you don't have to read the book to benefit from the site). In short, he's a man with very serious credentials and practical experience. The stocks his "Magic Formula" picks ares ones that, in the aggregate, are able to outperform the market because they display two key attributes, which are:
- They have demonstrated that they have earned a very high return on their capital, and
- They are cheaply priced (by the inverse of the pe ratio, called the earnings dividend [this is quite different from a dividend yield]).
Back-testing by Professor Greenblatt (yes, he also teaches now, out of Columbia University) has shown a 30% annualized rate of return over the past few decades using the "Magic Formula."
I think that any value investor would recognize the aforementioned attributes as clearly offering potential for great investment returns, and Mr. Greenblatt's research confirms it. The link takes you to a screen that automatically generates the best of these prospects, depending upon certain parameters you enter. I highly recommend this site as a place either to invest on what I might call the Magic Formula "Index", or to use these as leads to uncover potentially lucrative stock prospects.
One more word about Mr. Greenblatt - he has invested his own money to "raise the median" in the New York public school system - a man after my own heart. Read the very fascinating story and the tremendous results he has achieved with the relatively small investment of $1,000 per student per year. We salute Mr. Greenblatt's attempts to "raise the median", both socially and economically!
Magic Formula - check it out ...
The Confused Capitalist