Implementation of Joel Greenblatt's magic formula, which he described in his book - "The Little Book That Still Beats the Market".
Disclaimer - This is purely for educational and research purposes, I am in no way responsible for any monetary loss/gain you make using this, I highly encourage you to view this as a learning resource and not as an investment advice.
Joel Greenblatt is one of the most successful investors in the world, he has derived a rule-based approach for screening stocks for Value investing, which he calls the 'Magic Formula', using which he has generated a whopping 40% CAGR over a period of 20 years(v/s a CAGR of 9.5% generated by the famous S&P500), which means if you had invested
His formula gives a systematic approach to create a portfolio of bluechip companies, which have the potential for wealth-creation in the long term.
For conclusion, you can jump to the end of the notebook, but it is highly advisable not to do this, as Warren Buffett says, "Risk comes from not knowing what you're doing".
- Developed by one of the most successful investor/hegde-fund manager Joel Greenblatt(just Google him and you will know)
- Thoroughly applied and backtested strategy, that has beated the market by a significant measure.
- This follows a systematic approach and throws emotional investments out of the way.
- This is expected to work only if you invest for long-term(5-20 years)
- This is not expected to work on Finance/Insurance companies(since the calculations and their business functions and entirely different from what the formula uses)
- This is only applicable to large-cap(Market cap more than 10B$)/mega-cap(market cap more than 200B$) companies.
- This is expected to work only for US Companies(I highly encourage you to study this for your own country's stocks and backtest the results to learn if it really works)
- At the end of the day, this is stock market, and stock market investments are subject to Market risk.
- It only uses historical data to make decisions, it does not encorporate news and other factors that might influence a stock's price.
- It is not guaranteed to outperform the market every single year, it might underperform and make you exit sooner than planned(making you loose out on long-term gains)
- What happens if there is some internal issues going on in the company(Example - Poor management), it cannot filter those things when choosing stocks.
I hope this helps you make better decisions for investing your hard-earned money, happy investing!