Daunvest /Strategy
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StrategyRisk: High· Time: MediumSystematic investor

Magic Formula

Joel Greenblatt's mechanical ranking: high ROIC + low earnings yield

Rank all larger companies on (1) return on capital and (2) earnings yield. Buy the 20–30 with the best combined rank. Hold for 1 year, then rotate. Mechanics instead of gut feel.

Principles
  • Quality plus a low price is historically one of the most robust factors.
  • Mechanics shut out gut feel — you can buy when everyone else is fleeing.
  • Diversifying across 20+ companies means individual mistakes won't sink the portfolio.
Rules
  1. 1.Screen: ROIC > 15% and P/E below the industry median.
  2. 2.Buy the top 20–30 by combined rank.
  3. 3.Hold for 1 year, then sell and rebalance into the new top list.
  4. 4.No position over 5%.