does magic formula investing work 
the magic formula can no longer boast returns of a 30 compound annual growth rate but some studies nonetheless show favorable results a backtest of market performance between 2003 and 2015 found that the magic formula strategy had annualized returns of 11 4 compared with 8 7 from the s p500 this is clearly an outperformance of the benchmark wrote the author of the backtest but by nowhere near as much as the little book claims the bottom linethe magic formula is a simple rules based system designed to bring high returns within reach of the average investor by following a simple algorithmic approach the magic formula allows investors to easily identify outperforming or undervalued companies without letting emotions or instinct cloud their judgment while returns are now far lower than when the magic formula was first published the method can still beat the market especially with a few modifications correction feb 1 2023 a previous version of this article incorrectly stated the market capitalization and the number of companies investors can select in greenblatt s online stock screener it has been edited to reflect that the market capitalization starts at 50 million and investors can select 30 to 50 companies 