Joel Greenblatt is an American academic, hedge fund manager, investor, and writer. He is a value investor, and adjunct professor at the Columbia University Graduate School of Business.
On October 2009 he launched Formula Investing,[9] an online money management firm that follows the investment strategy described in his New York Times bestselling book The Little Book That Beats the Market. Formula Investing is a money management firm that uses a proprietary stock-screening system and a disciplined approach to manage portfolios of value stocks. The firm offers its services to individual investors and institutions and to registered investment advisors, who can use Formula Investing as a sub-advisor.
Formula Investing uses a system that determines portfolio selections based on a combination of their relative cheapness and quality, as measured by earnings yield and return on capital. Formula Investing allows money to be managed in a disciplined manner that removes factors, like excess emotion and future projections, that often lead to bad investment results.
Greenblatt suggests purchasing 30 "good companies": cheap stocks with a high earnings yield and a high return on capital. He touts the success of his magic formula in his book 'The Little Book that Beats the Market', Joel Greenblatt , citing that it does in fact beat the S&P 500 96% of the time, and has averaged a 17-year annual return of 30.8%.
Formula
Establish a minimum market capitalization (usually greater than $50 million).
Exclude utility and financial stocks.
Exclude foreign companies (American Depositary Receipts).
Determine company's earnings yield = EBIT / enterprise value.
Determine company's return on capital = EBIT / (net fixed assets + working capital).
Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital (ranked as percentages).
Invest in 20–30 highest ranked companies, accumulating 2–3 positions per month over a 12-month period.
Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.
Continue over a long-term (5–10+ year) period.
Formula Investing uses a system that determines portfolio selections based on a combination of their relative cheapness and quality, as measured by earnings yield and return on capital. Formula Investing allows money to be managed in a disciplined manner that removes factors, like excess emotion and future projections, that often lead to bad investment results.
Greenblatt suggests purchasing 30 "good companies": cheap stocks with a high earnings yield and a high return on capital. He touts the success of his magic formula in his book 'The Little Book that Beats the Market', Joel Greenblatt , citing that it does in fact beat the S&P 500 96% of the time, and has averaged a 17-year annual return of 30.8%.
Formula
Establish a minimum market capitalization (usually greater than $50 million).
Exclude utility and financial stocks.
Exclude foreign companies (American Depositary Receipts).
Determine company's earnings yield = EBIT / enterprise value.
Determine company's return on capital = EBIT / (net fixed assets + working capital).
Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital (ranked as percentages).
Invest in 20–30 highest ranked companies, accumulating 2–3 positions per month over a 12-month period.
Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.
Continue over a long-term (5–10+ year) period.
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