Greenblatt's Magic Formula
This screen implements the Magic Formula value investing strategy pioneered by hedge fund manager, Joel Greenblatt.
It is based on buying 20-30 "good, cheap companies" defined as having the best available combined MFI ranking in terms of Earnings Yield and a Return on Capital.
Greenblatt argues that return on capital is the best determinant of whether a business is a good one or not (companies that can earn a high ROC over time generally have a special advantage that keeps competition from destroying it, such as a unique business model). Earnings yield is his metric for 'cheapness'. Greenblatt believes that stock prices of a firm can experience “wild” swings even as the value of the company stays relatively constant giving investors opportunities to buy low and sell high. more »