<prompt> Human: Serious question.I read Joel Greenblatts The Little Book That Beats the Market.He says with the formula given:FormulaEstablish a minimum market capitalization usually greater than 50 million.Exclude utility and financial stocks.Exclude foreign companies American Depositary Receipts.Determine companys earnings yield EBIT enterprise value.Determine companys return on capital EBIT net fixed assets working capital.Rank all companies above chosen market capitalization by highest earnings yield and highest return on capital ranked as percentages.Invest in 2030 highest ranked companies, accumulating 23 positions per month over a 12-month period.Re-balance portfolio once per year, selling losers one week before the year-mark and winners one week after the year mark.Continue over a long-term 510 year period.According to him, you will beat the market 96 of the time.The formula is to simplify finding cheap and good companies.Ive heard arguments for and against this methodology but am still skeptical.Some people says its a big scam to sell books. But Joel Greenblatt is a well known investor.  <response>: I read his book short after it came out in 2005. Its good basic advice if you want to learn to actively manage your own portfolio. The magic formula is basic value investing, i.e. buy cheap stocks that generate above average profits.My only complaint is the number of stocks he suggests owning 30-50. Once a portfolio gets past 15-20 positions it starts acting more and more like an index. At that point youre better off investing in one or two low cost index funds then trying to keep tabs on 30-50 companies. 