The New Magic Formula For Investing

Dividend Yield Theorist10.01K FollowersFollow5ShareSavePlay(17min)Comment(1)SummaryGreenblatt's 'magic formula'—combining Return on Capital and Earnings Yield—consistently outperformed the S&P 500 from 2017 to early 2026.Testing the formula on S&P 500 constituents, portfolios of 20–30 top-ranked stocks delivered 4–6% higher annual returns and superior Sharpe ratios versus the index.Quality (ROCE) alone outperformed value (Earnings Yield) alone, but their combination yielded the best risk-adjusted results.Substituting Price to Free Cash Flow for Earnings Yield further improved returns and Sharpe ratios, suggesting enhanced value capture. Thapana Onphalai/iStock via Getty Images Inspiration Joel Greenblatt is a well-known value investor and founder of Gotham Asset Management. He earned his credibility as an investor by achieving ~50% annualized returns between 1985 and 1994, and later through his investing firm and publicThis article was written byDividend Yield Theorist10.01K FollowersFollowI have a masters degree in Analytics from Northwestern University and a bachelors degree in Accounting. I have worked in the investment arena for over 10 years starting as an analyst and working my way up to a management role. Dividend investing is a personal hobby and I look forward to sharing my thoughts with the Seeking Alpha community.Analyst’s Disclosure: I/we have a beneficial long position in the shares of QCOM, HCA, MCK, ACN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.