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MagicDiligence (< 20)

Are Greenblatt's Published Gains Achievable?

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March 23, 2009 – Comments (6)

In Joel Greenblatt's The Little Book that Beats the Market, the Magic Formula strategy returned over 30% a year. Is this result obtainable going forward or did the study's time period skew results unrealistically?

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6 Comments – Post Your Own

#1) On March 23, 2009 at 10:29 AM, bmw201030 (35.63) wrote:

I'd like to see what the magic formula did for 100 yrs or more.  I think the study was certainly skewed as the overall market was bullish during most of the period tested.  The dow from jan 88 to jan 2004 was up more than 500%  approx 1,908 on Jan 4 88 and 10,357 on jan 2 04.  If for example you employed the magic formula from jan 65 when the dow traded at 889 to jan 81 (another 16 yr period) when it traded at 785 a loss of  roughly 12%, then how would it have fared.  If anyone has statistics on this i'd be interested!

I do use the magic formula as a way to find undervalued stocks but never make a purchase on that alone.  These numbers of course do not include dividends!

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#2) On March 23, 2009 at 10:30 AM, bmw201030 (35.63) wrote:

I'd like to see what the magic formula did for 100 yrs or more.  I think the study was certainly skewed as the overall market was bullish during most of the period tested.  The dow from jan 88 to jan 2004 was up more than 500%  approx 1,908 on Jan 4 88 and 10,357 on jan 2 04.  If for example you employed the magic formula from jan 65 when the dow traded at 889 to jan 81 (another 16 yr period) when it traded at 785 a loss of  roughly 12%, then how would it have fared.  If anyone has statistics on this i'd be interested!

I do use the magic formula as a way to find undervalued stocks but never make a purchase on that alone.  These numbers of course do not include dividends!

Report this comment
#3) On March 23, 2009 at 10:31 AM, bmw201030 (35.63) wrote:

I'd like to see what the magic formula did for 100 yrs or more.  I think the study was certainly skewed as the overall market was bullish during most of the period tested.  The dow from jan 88 to jan 2004 was up more than 500%  approx 1,908 on Jan 4 88 and 10,357 on jan 2 04.  If for example you employed the magic formula from jan 65 when the dow traded at 889 to jan 81 (another 16 yr period) when it traded at 785 a loss of  roughly 12%, then how would it have fared.  If anyone has statistics on this i'd be interested!

I do use the magic formula as a way to find undervalued stocks but never make a purchase on that alone.  These numbers of course do not include dividends!

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#4) On March 23, 2009 at 10:34 AM, bmw201030 (35.63) wrote:

Apologize for the 3 duplicate replies :-(

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#5) On March 23, 2009 at 10:43 AM, joaquingrech (98.50) wrote:

Well, I have great admiration for Joel Greenblatt so my view might be skewed. I'm not comfortable using only the magic formula without any research but I believe the book does a great job at answering your question.

To me the idea of buying undervalued stocks that are great businesses seems fair enough. The book can be read in a couple hours and it's pretty clear about the concept. If your question is whether you can achieve the same results in the future that you achieved in the past... well... who knows? Nobody can guarantee a 30% return for life. Greenblatt's point is to "buy great businesses at great prices". He suggests a simple way to find those businesses for most people, that is, people that are not professional financial analysts. He even provides free tools to help you out. I think it's a good gift on his part, a gift that has beat the market considerably.

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#6) On March 23, 2009 at 11:25 AM, nottheSEC (78.93) wrote:

Rec thanks for posting the magic dilligence stuff! BMW 201030 & Creat326 have said all I could say.  I too would like to see Greenblatt's numbers over a greater time frame and believe in self due dilligence.  

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