The Magic System was created by Joel Greenblatt and first described in his best-selling e-book The Little E-book That Beats the Market. Greenblatt claimed that this formulation achieved an annual return of 23.7 p.c over a 17-year interval from 1988 to 2004. The general market achieved a return of 12.3 p.c over the identical interval. Numerous impartial backtesting research confirmed that the formulation beats the market within the US and internationally, although not essentially by the identical margin as offered by Greenblatt.
The Magic System makes use of the rules of worth investing and combines the funding philosophies of Benjamin Graham and Warren Buffet. Basically, this technique seeks to purchase good firms at cut price costs.
The plain query you could have is how can the Magic System preserve working when everybody is aware of about it? Greenblatt claimed that the formulation works properly within the long-term, however within the short-term Mr. Market could worth shares based mostly on emotion, thus the formulation can underperform the marketplace for a number of years in a row. Most buyers simply can not stick to the technique lengthy sufficient for it to work. This creates an amazing alternative for buyers with a long-term funding horizon. Due to this fact, this technique is most fitted for buyers with persistence and a long-term view.