Joel Greenblatt is no magician, but the founder of New York-based Gotham Asset Management does have a magic formula for investing. In 2005, Greenblatt, who also has been teaching at Columbia Business School for the past 17 years, published The Little Book that Beats the Market, which explains how investors can outperform market averages by following a simple process of investing in good companies at bargain prices. The ‘Magic Formula,’ as Greenblatt termed it, was about seeking out companies with high return on invested capital, and which could be purchased at a low price. The strategy produced back-tested returns of 30.8% per year from 1988 through 2004, more than double the S&P 500’s 12.4% return over the same period. What better proof than eating your own cooking, Greenblatt’s private investment partnership has logged a 40% annualised return since its inception in 1985.
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Joel Greenblatt on the magic formula and more
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