The Little Book That Still Beats the Market

Consider two companies,

The formula achieved the greatest performance with the smal est-capitalization stocks studied.

Earnings yield was measured by calculating the ratio of pretax operating earnings (EBIT) to enterprise value (market value of equity41 + net interest-bearing debt).

General Screening Instructions

Now that we have that settled, we need to discuss a few simple ways to find our magic formula stocks. There are many choices for screening packages to help us sort through the universe of available stocks,

It’s not that they won’t have the potential to make a lot of money from what they learn. It’s that there are probably higher and better uses for their time and intel ect.

There ain’t no tooth fairy! 25

That’s right. On Wal Street, money won’t magical y appear under your pil ow. There’s no one to tuck you in, no one to take care of you, and no one you can turn to for good advice.

Even professional research analysts and money managers have a tough time making accurate earnings predictions for individual companies.

Rather than just blindly choosing stocks that catch your fancy or blindly accepting the output of the magic formula, how about combining both strategies?

Over three-year periods, if you fol owed the magic formula, you would never have lost money.