Magic Formula Investing

When you mention the phrase ‘magic formula’, it usually pertains to something that is bound to provide 100% successful results. In investing, there is such a term as magic formula investing. To have a deeper understanding of the term and whether it will really work to the advantage of an investor, here is a quick overview of magic formula investing. The MFI or magic formula investing idea is from a book authored by Joel Greenblatt which is entitled “The Little Book that Beats the Market”.

What the 176-page book describes is how an investor can get better returns in the financial market in the long run. Greenblatt is a hedge fund manager and the MFI is a formula that he developed in order to beat the market, as the title of his book implies.

Basically, this can be done by buying good companies at a bargain price. The problem is that it is quite difficult to purchase stocks from a good company at a bargain price, and this is exactly what the MFI teaches investors. The good thing about the magic formula investing is that the author has a support website where believers of the MFI principle can go to use the formula. All you have to do is choose a minimum market capitalization and select the number of top ranked Magic Formula stocks that you would like to choose from.

For the second field, there is an option of 25, 50 and 100 companies. From the results, you will have a clear investment plan to follow. According to the support site for the MFI, this was created to make it easier for the average investor to have a clear set of steps to follow.

As a final note, you need to remember that the MFI is a long-term investment strategy. To decide for yourself whether the MFI will work for you as an investor, check out the website or purchase Greenblatt’s book.