Magic Formula returns by decile


What is this? Some dogs of the dow strategy?

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I was a fan. Any real world results that managed to capture those returns through today? Or, an updated chart that includes the additional 18 years through 2022?

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No. I was just trying to illustrate the general shape of return versus metrics upon which return is known to depend, such as profitability (ROA or ROE) and/or valuation (earnings yield) and/or growth (EPS growth or sales/share growth). Real world returns are generally lower than returns in backtests, but the general shape is the same. The graph shows the benefit of screening for the top few percent of stocks as ranked by relevant metrics.

Magic Formula Investing

I believe it’s not well regarded in the mechanical investing community - they could not duplicate Greenblatt’s published results.

Still, the theory is sound - buy a slate of stocks with quality (high ROA) and value (Low PE) characteristics. It ought to give reasonable results, if you can stick with the inevitable tracking error versus the index.

Too much work for me. Avantis will do it for me for 15 bps.