// STUDY RESULT · 1993-10 TO 2026-07
Magic Formula
TRADE-OFFRank the market on cheapness (earnings yield) plus quality (return on capital); buy the best combined ranks mechanically.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 11.3% | 8.9% |
| Return per unit of risk (Sharpe) | 0.62 | 0.65 |
| Worst fall (max drawdown) | -60.4% | -52.6% |
// GROWTH OF $1, LOG SCALE
AMBER: THE STRATEGY · GREY: $SPX BUY & HOLD
Tested on years it never saw (from the split): 12.3% a year against 12.4% for the benchmark; Sharpe 0.62 in the training years, 0.62 after.
After 25 bps of trading costs: 10.2% a year. WITHIN RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 5.5% | 19.1% |
| 2000s | 12.9% | -2.6% |
| 2010s | 9.4% | 11.6% |
| 2020s | 17.7% | 14.1% |
// THE IDEA, AS PUBLISHED
Joel Greenblatt, 'The Little Book That Beats the Market' (2005) · 2005
- Earnings yield = EBIT / EV; return on capital = EBIT / (net working capital + net fixed assets)
- Exclude utilities, financials and foreign stocks; apply a market-cap floor
- Sum the two ranks; buy the top 20-30 in batches; hold each about one year
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:41 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.