Joel Greenblatt developed an elegantly straightforward yet powerful investment methodology known as the Magic Formula, detailed in “The Little Book That Beats the Market.” The strategy distills complex stock analysis into two essential components:
- Return on Capital – A measure of how efficiently a company uses its resources to generate profits
- Earnings Yield – An indicator of how inexpensive a stock is relative to its earnings
What sets this formula apart is its systematic approach: companies are ranked using these two metrics, creating a quantitative method for identifying businesses that are both highly profitable and potentially undervalued. This dual focus helps investors target quality companies when they’re available at attractive prices.
The beauty of Greenblatt’s approach lies in its accessibility – it transforms sophisticated investment concepts into a repeatable process that individual investors can implement without needing deep financial expertise.
Here are the top 10 stocks using Validea’s strategy based on Joel Greenblatt’s Magic Formula for November of 2024.
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