Magic Formula Investing: Does Greenblatt's Method Work?

Joel Greenblatt's magic formula investing uses two metrics to pick high-performing stocks.

The strategy ranks companies based on earnings yield and return on capital, aiming for those with the highest combined scores.

While the formula showed strong backtested results, real-world performance has been less impressive due to transaction costs and investor discipline.

Applying the formula to the UK market involves additional challenges, such as a smaller pool of large-cap companies and higher liquidity risks for smaller firms.