Greenblatt's Magic Formula

Greenblatt's Magic Formula is an investment strategy aimed at finding good, undervalued companies. It ranks stocks based on two main factors: how cheap they are (low price compared to earnings) and how well the company is performing financially (high return on capital). By focusing on companies with high returns that are also inexpensive, the strategy seeks to identify stocks likely to grow in value over time. Investors using this formula buy a list of top-ranked stocks and hold them until valuations improve, helping to maximize returns while reducing the risk associated with investing in overhyped or overvalued companies.