Wookie Capital Video Tutorial
Greenblatt’s magic formula is a simple and easy screening method that relies on quantitative screens and is designed to beat the stock market’s average annual returns. It outlines two criteria: companies cost of capital and stock price. The formula helps us to screen good companies, on average, and at a cheaper price, on average. According to Greenblatt, we need to paying a bargain price when we purchase a share in a company, in other words, we need to purchase an asset that earns more relative to the price we are paying (high earnings yield). Note that we also need to buy a good company rather than the bad one, therefore, we should select asset has higher rates of return (relatively higher ROC). In short, Greenblatt formula helps us to buy above-average companies at below-average prices. Detail explanation can be read at this: Greenballt’s and Price Momentum screener model
