To The Moon

Picture attached is what TIGR deepseek provides .

Now, compare it to Grok's

Joel Greenblatt's "Magic Formula Investing" is a simple, rules-based strategy outlined in his book The Little Book That Beats the Market (first published in 2005 and updated in 2010). It’s designed to help investors identify high-quality, undervalued stocks to outperform the market over the long term. The approach combines principles of value investing—buying stocks at a discount to their intrinsic value—with a focus on companies that efficiently generate profits. Here’s how it works:

Core Concept

The Magic Formula ranks companies based on two key financial metrics:

Earnings Yield (EBIT/Enterprise Value): This measures how cheap a stock is relative to its earnings power. It’s calculated as earnings before interest and taxes (EBIT) divided by enterprise value (EV, which includes market capitalization plus debt minus cash). A higher earnings yield indicates a stock is undervalued—essentially, you’re getting more earnings per dollar invested.

Return on Capital (ROC): This gauges how efficiently a company uses its capital to generate profits. Greenblatt defines it as EBIT divided by the sum of net working capital and net fixed assets (excluding goodwill). A higher ROC points to a "good" business that produces strong returns on its invested capital.

The strategy seeks to buy "good companies" (high ROC) at "bargain prices" (high earnings yield).

How to Apply the Magic Formula

Define the Stock Universe: Start with a pool of stocks, typically mid- to large-cap companies (e.g., market cap above $50 million or higher, depending on preference). Greenblatt’s original tests focused on the largest 1,000 to 3,500 U.S. stocks. Exclude financials and utilities due to their unique capital structures, and foreign stocks if data comparability is an issue.

Rank the Stocks:

Calculate Earnings Yield for each company and rank them (1 = highest yield).

Calculate ROC for each company and rank them (1 = highest ROC).

Add the two ranks together to get a combined score for each stock. The lower the combined score, the better the stock ranks.

Select Stocks: Choose the top 20–30 stocks with the lowest combined scores.

Build the Portfolio: Invest equal amounts in these 20–30 stocks, adding 2–3 positions per month over a year to spread out purchases.

Rebalance Annually: After a year, sell losing stocks a week before the 12-month mark (for tax loss benefits) and winning stocks a week after (for long-term capital gains tax benefits in the U.S.). Then, repeat the ranking process and reinvest in the new top 20–30 stocks.

Stay Committed: Stick with the strategy for at least 3–5 years, as it may underperform in the short term but aims to outperform over longer periods.

Free and Simple Tools

You can implement this strategy using free stock screening tools:

MagicFormulaInvesting.com: Greenblatt provides a free screener on this site (owned by an entity he controls). It calculates rankings based on his methodology for U.S. stocks, updated in real time. You select a minimum market cap (e.g., $50 million, $200 million, etc.), and it lists the top stocks.

Other Free Screeners: Platforms like Finviz, Yahoo Finance, or Google Finance allow you to filter stocks by metrics like earnings yield (or its proxy, low P/E ratio) and ROC (or its proxy, ROA/ROIC if ROC isn’t directly available). You’d need to manually calculate and rank the metrics, but the data is accessible for free.

For Earnings Yield: Use EBIT (often labeled operating income) and approximate EV with market cap plus total debt minus cash.

For ROC: Use EBIT divided by (current assets minus current liabilities) plus net property, plant, and equipment.

Why It Works (in Theory)

Greenblatt argues that the formula exploits market inefficiencies. Investors often overreact to short-term bad news, driving down prices of fundamentally strong companies below their true value. By focusing on high ROC (quality) and high earnings yield (value), the formula identifies these mispriced opportunities. His backtests from 1988–2004 showed the top 30 stocks returning 30.8% annually versus the S&P 500’s 12.4%, though results vary by period and market.

Practical Example

Imagine screening U.S. stocks with a market cap over $200 million:

Company A: Earnings Yield = 10% (rank 5), ROC = 30% (rank 3), Combined Rank = 8.

Company B: Earnings Yield = 8% (rank 10), ROC = 40% (rank 1), Combined Rank = 11.

You’d pick Company A (lower combined rank) and repeat for the top 20–30.

Caveats

Volatility: The strategy can underperform for months or even years, requiring patience.

Data Dependence: It relies on accurate financials, so avoid stocks with recent earnings releases that might skew data.

Not Foolproof: Later studies (e.g., 2003–2015) showed more modest outperformance (11.4% vs. S&P 500’s 8.7%), not the 30% Greenblatt claimed, and it struggled during certain market conditions like the 2007–2008 crisis.

For a free and simple start, visit MagicFormulaInvesting.com or use Finviz to screen for high ROIC and low P/E stocks, then refine manually. It’s a disciplined, unemotional way to invest, rooted in buying quality at a discount.

I prefer grok over deepseek. What about you?