#MAGIC CALCULATOR FORMULA PROFESSIONAL#

Getting excellent rankings in both categories, (though not the top ranked in either) would be better under this ranking system than being the top-ranked in one category with only a pretty good ranking in the other.'įrom here, Greenblatt recommends selecting 20 to 30 of the better-ranked companies, selling them at predetermined intervals and replacing with new stocks that fit the formula. '.a company that ranked 232nd best in return on capital and 153rd best in earnings yield would receive combined ranking of 385 (232 + 153). He goes on to assigning numerical rankings, based on each company's earnings yield and return on capital: He also stressed the formula will not necessarily be successful with any specific stock, but will be successful for a group of stocks as a unit or block.

Greenblatt did not test this hypothesis on international stock markets due to difficulties comparing international and American data, but believed it would apply globally. Smaller companies, $50 million or under, were avoided because they tend to have fewer shares in circulation and large purchases can cause sharp changes in share prices. Greenblatt's system analyzed the largest companies trading on the American stock market, ranked by the largest 1,000, 2,500 or 3,000, for a 17 year period before the book's 2005 publication. He wrote the book for a non-technical reader (his teenaged children were the target audience), but an appendix includes more advanced explanations and data for readers with relevant experience or education.

He touts the success of his magic formula in his book 'The Little Book that Beats the Market' ( ISBN 6-7 published 2005, revised 2010), stating it averaged a 17-year annual return of 30.8%. He describes this as a simplified version of the strategy employed by Warren Buffett and Charlie Munger of Berkshire Hathaway.

#MAGIC CALCULATOR FORMULA PROFESSIONAL#

1957), an American professional asset manager since the 1980s, suggests purchasing 30 'good companies': cheap stocks with a high earnings yield and a high return on capital.

Magic calculator formula