Magic Formula

Momentum: the value investor's best friend

Quantitave Value Investing in Europe: What Works for Achieving Alpha

There is a growing literature on statistical methods to beat the market inspired by the original classics, Dremen's Contrarian Investment Strategies and Greenblatt's Little Book, but a new report uniquely focuses on Europe and adds momentum to the mix of factors tested. Like other studies, it shows simple value measures beat the market, but with a surprising twist.

EBIT explained

A new series on frequently used terms starts

Where you’ll see EBIT

EBIT is used in Joel Greenblatt’s Magic Formula as the profit measure and numerator of the Return on Capital and Earnings Yield calculations.

More grist to the Magic Formula mill

More evidence Greenblatt’s formula works in the UK, and a suggestion to improve it

Mines flood Nifty Thrifty screen

Last night I ran a mechanical screen, the Nifty Thrifty, in preparation for a quarterly article I write for Money Observer magazine.

Those magic formula loose ends...

Too good to be true? The loose end that bothers me most about last week’s magic formula testing is the incredible success of the formula in the first three years of the test. It’s visible to the naked eye:

Magic Formula versus FTSE 100

Two crashes and two bull markets in a day

After a day (and part of a night) exporting data from Sharelockholmes, ranking it, and creating portfolios from the top 30 companies using two variants of Joel Greenblatt's magic formula, I’d built a monster: 133 individual worksheets, 80 portfolios (40 for each variant of the magic formula), one chart, and a serious case of number blindness.

Testing the magic formula in the UK

Monstered by data Joel Greenblatt's magic formula, which ranks companies by quality and value has an outstanding performance record in the US. I'm about to see how it would have done in the UK over the last ten years using data available to private investors. First a bit of revision, these are the two magic formula variables:

Formula not so magic in UK

Down but not yet out

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