Strategies · Core
Magic Formula
Rank on earnings yield and return on capital, buy the top combined rank — Greenblatt’s two-factor quality-value screen.
Definition
Rank the universe on EBIT/EV and EBIT/capital (definitions in the book). Sum the ranks, buy the top 20–30, hold a year with staggered replacement. Exclude financials and utilities in the original.
Why it matters
It is the most copied retail quant screen. Implementation details (yield definition, small-cap inclusion) change the result more than the slogan.
Case
A top-30 that is 40% one cheap cyclical industry. The formula does not cap sectors unless you add that rule.
How to read it
Exact ratios, investable cap floor, and sector caps. The book’s backtest universe is not today’s ETF overlay.
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