Posted by kcchongnz > 2013-09-23 19:01 | Report Abuse

Joel Greenblat, a well known fund manager in the US has been using his magic formula for many years in the more efficient market and earn extra-ordinary return for his fund. The magic formula just based on buying good companies (in term of ROIC) at cheap price (earnings yield), a sensible and simple concept.

Yes the magic formula bases on historical data on ROIC and earnings yield last year. Yes, there are many problems with historical data. Yes, we must be forward looking and not backward looking (forecast the future and not looking at the rear view mirror).

But why does the magic formula, basing on historical data, out-performed the market by so much? Watch the video of value investing, courtesy of Tan KW.