Joel Greenblatt Magic Formula. I always wanted to make this. The Indicator shows 3 values. ROC,EY,SUM.
ROC= Return On Capital. EY=Earnings Yield SUM= Addition of Two.
Formula: ROC=EBIT / (Net Working Capital + Net Fixed Assets). EY = EBIT / Enterprise value Enterprise Value=(Market value of equity + Net Interest-bearing debt)
To implement the strategy, investors start by identifying a universe of stocks, typically large-cap or mid-cap companies that trade on a major stock exchange. Next, they rank the stocks based on their ROC and EY. The companies with the best combination of these two metrics are considered the best investments (based on this ranking). For example, a stock that ranks 10th on EY and 99th on ROIC gets a value of 109. The two ranks are simply added together and all stocks are ranked on the sum of the two ranks. The stocks with the lowest values are best.
All credits to "The Little Book That Beats The Market" by Joel Greenblatt
The Magic Formula strategy is a stock selection method popularized by Joel Greenblatt’s book The Little Book That Beats the Market.
It involves ranking companies based on Two factors: A high return on capital and A high Earnings Yield. The companies with the best combination of these two metrics are considered the best investments. The strategy aims to find undervalued companies with strong financials that have the potential for high returns over the long term.
@brianbailleul, check your settings again, maybe try copying code and pasting in editor?
sharpah
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@brianbailleul, I use it in this template, idk why its broken for you.
allanster
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Nice work, thank you for sharing with the community!
MartinWeb
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why is the lowest numbers best - i mean why would u want a lower return? and what if thei are negative?? there is another magic number indicator tradingview.com/v/o1pxojs2/ but it shows completely different numbers. any idea why that is the case?
sharpah
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@MartinWeb, you need to understand how to formula actually works, The ROC and EV, List of stocks in one sheet, ROC, and another EV, For example, a stock that ranks 10th on EY and 99th on ROIC gets a value of 109, You need to make a sheet, and rank the stocks on it. two sheets, two values. Roc is return of capital, and EV is enterprise value, This shows how much it has risen or declined.
sharpah
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@MartinWeb, you are confusing the lower number on ranking sheet vs indi values. read greenblatt chapter in market wizards hedgefund series, the last chapter.