If you're keen on uncovering the global efficacy of the Magic Formula and procuring international Magic Formula stocks, then this is where it all unfolds.

This piece unveils its effectiveness worldwide and furnishes a detailed guide on locating viable Magic Formula investment prospects across the globe.

You'll also learn how to enhance the strategy's returns by an impressive (+600.5%) through extensive experimentation we've conducted, so stay hooked.

First, let's delve into a quick introduction…

You're probably well-versed with the Magic Formula investment approach crafted by Joel Greenblatt and outlined in his remarkable book, The Little Book that Still Beats the Market.

That book essentially piqued my interest in quantitative investing.

Uncovers top-notch undervalued firms

The Magic Formula aids in pinpointing top-tier undervalued companies trading at a favorable valuation by seeking out firms with a high earnings yield (undervalued) and a strong return on invested capital (ROIC) (quality companies).

It subsequently ranks the companies based on their ROIC (where 1 signifies the highest ROIC) and earnings yield (where 1 signifies the highest earnings yield).

To ascertain the Magic Formula rank, the ROIC rank and earnings yield rankings are aggregated.

The most highly ranked Magic Formula corporation secures the lowest Magic Formula rank (lower values indicate higher ranking).

All catered for at your fingertips

If this seems like an arduous process, fret not – we've handled everything for you. You can procure a compilation of top Magic Formula stocks with just a few clicks of a mouse.

Keep scrolling to uncover the precise procedure.

Does the Magic Formula extend beyond the USA?

You've witnessed the Magic Formula's success in the US, validated by Joel within his book and on his website. However, does it transcend borders?

Back in 2012, we sought to ascertain the global efficacy of the Magic Formula investment strategy in Europe across the 12-year period spanning from June 1999 to June 2011.

Tap here to commence your quest for global Magic Formula Stocks Now!

Our testing method

Our back-test survey encompassed about 1500 firms across the 17-country Eurozone markets during the 12-year evaluation timeframe (13 June 1999 to 13 June 2011).  Exclusions comprised of banks, insurance entities, investment funds, specific holdings firms, and REITs.

We included insolvent firms to avert any survivor bias and omitted firms with an average 30-day trading volume below €10,000.  In cases of insolvency or acquisition, returns were computed from the final stock market price before the delisting.

Here's what we uncovered:

Magic Formula returns in Europe from June 1999 to June 2011 by company size.
Source: Quantitative Value Investing in Europe: What works for achieving alpha

As evident in the table above, firms with the most favorable Magic Formula ranking, quintile 1 (Q1), remarkably outperformed those with lower rankings (Q5).
This trend transcended across small, mid-sized, and large companies.

The highest-ranked European firms all significantly outperformed the market, which delivered a mere 30.54% over the same 12-year period.

The top Magic Formula corporations outpaced the market by up to 152.3%.

External validations of the Magic Formula

Various individuals also conducted tests on the Magic Formula's performance beyond the US, and unsurprisingly, it emerged victorious.

Here's a glimpse into other research studies we came across:

Does the Magic Formula hold value in Finland?

Indeed, it does, as verified by Topias Kukkasniemi in 2013 through his 68-page master’s thesis, The  Use of Systematic Value Strategies in Separating The Winners From The Losers: Evidence From The Finnish Markets at the Lappeenranta University of Technology in Finland.

Topias evaluated the Magic Formula within the Finnish stock market over the 13-year period from May 1997 to May 2010 and disclosed that the strategy outperformed the market. 

Does the Magic Formula deliver in Belgium, Luxembourg, and the Netherlands?

Between 1995 and 2014, the Magic Formula indeed thrived in Belgium, Luxembourg, and the Netherlands, generating an average annual return 7.7% higher than the market over the 20-year evaluation period, a truly impressive outcome.

Confirmed success – Here’s how to unearth global Magic Formula stocks

Now, onto the captivating segment where you'll unveil the process for identifying Magic Formula investment prospects for your portfolio.

We've laid the groundwork for you

We've already configured a Magic Formula screen for you, so all you need to do is activate it.

Here's how it's done:

After logging in and clicking on the Go to Screener button, select the Screener icon, and click the Load button as illustrated below:

Subsequently, access the Predefined filters tab, scroll down, and opt for the Magic Formula Screen. Then click the Confirm button to load the screen. 

Select all the countries, daily value, and company size

You then need to specify:

• All the countries where you seek Magic Formula prospects – Verify trading availability with your broker
• The minimal Daily trading volume and
• The minimum Market value

for the firms you intend to screen.

To comply, simply access the dropdown under Countries and tick the boxes for all your preferred countries.

This is where the magic happens. To start, you will need to enter the minimum daily trading volume and minimum market value of the companies you want to screen for. Keep in mind that the numbers you enter are in thousands. So, if you enter $125, it is equal to $125,000.

Click the image to enlarge.

Simple as that!

Once you're done, simply hit the Apply button to generate your Magic Formula investment ideas.
Click here to begin finding your own Magic Formula Stocks Now!

But the Magic Formula can be enhanced – significantly

As mentioned, you can turbocharge your returns from the Magic Formula, to a staggering up to 600.5% in the testing we've conducted.
We put the Magic Formula investment strategy to the test with 13 other ratios, and the results speak for themselves. The returns can be substantially amplified.

Click the image to enlarge.
Magic Formula returns when combined with a third ratio in Europe from June 1999 to June 2011. Source: Quantitative Value Investing in Europe: What works for achieving alpha.

Let's look at column Q1

In column Q1, you'll find the returns generated by first selecting the 20% best Magic Formula companies combined with the ratios in Factor 2.

Best combination +783% was Momentum (600.5% improvement)

This implies that you could have achieved the highest return of 783.3% over the 12-year period if you had invested in the top-ranked Magic Formula companies that also had the highest 6-month price index (share price momentum).
This represents a 600.5% improvement over the highest return of 182.8% you could have earned if you had only employed the Magic Formula to discover investment prospects.

Other exceptional combinations

The table above also highlights other impressive combinations, such as:

• Magic Formula and 12m Price index (momentum) +472.3%
• Magic Formula and Price to Book +460%
• Magic Formula and ERP5 +384.4%
• Magic Formula and 5yr average Earnings Yield (EBIT/EV) +294.8%

How to marry the Magic Formula with other ratios

It's incredibly easy to blend the Magic Formula with other ratios or indicators using the screener.
The following screenshots will walk you through the process.
Start by loading the Magic Formula saved screen, selecting the countries, Daily Trading Volume, and minimum Market Value, as shown earlier.

How to incorporate 6-month Price Index (momentum)

To add the Price Index 6m (6 months momentum) to the screen, click the drop-down list below Secondary Factor, and under the Momentum category, select Price Index 6m.

Next, adjust the slider below Price Index 6m to select the top 20% or 30% of companies with the best six-month Price Index.

To obtain a list of companies, simply click the Apply button.
In the same manner, you can also add:

• 12m Price index (momentum)
• Price to Book
• ERP5
• 5-year average Earnings Yield (EBIT/EV)

Click here to start finding your own Magic Formula stocks worldwide Now!

Or consider utilizing other beneficial factors like:

• Free cash Flow yield – to select companies cheap compared to the cash they generate
• Debt to Equity – To select companies with a low amount of debt
• Gross Margin – Novy-Marx (the best quality ratio we have tested)

and many more (you can see all ratios and indicators you can use in the Glossary)

You can save all your screens

Once you have customized the basic Magic Formula screen to align with your investment style, you can save it for future use. The possibilities are endless.
Save as many screens as you like.
To save your screen, click the Save As button.

In the pop-up box, give your screen a name and a brief description to help you recall its purpose.
To finalize the save action, simply click on the Confirm button

All this costs less than a lunch for two

You might wonder, how much can a powerful tool like this cost? Let me assure you, to make it affordable and ensure a significant return on your investment, even if your portfolio is still small, we've set the price of the screener surprisingly low.
It costs less than an inexpensive lunch for two each month.
Don’t hesitate; you have nothing to lose. If you are not 100% satisfied, you get your money back – guaranteed!

PS: Why not sign up now, while this is fresh in your mind?
Click here to start finding your own Magic Formula stocks worldwide Now!

Please note:  This website is not associated with Joel Greenblatt and MagicFormulaInvesting.com in any way. Neither Mr. Greenblatt nor MagicFormulaInvesting.com has endorsed this website's investment advice, strategy, or products. Investment recommendations on this website are not chosen by Mr. Greenblatt, nor are they based on Mr. Greenblatt's proprietary investment model, and are not chosen by MagicFormulaInvesting.com. Magic Formula® is a registered trademark of MagicFormulaInvesting.com, which has no connection to this website.

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