Joel Greenblatt outlined his “magic formula” for stock market investing in The Little Book That Beats the Market. The formula ranks stocks based on two simple and easily calculated figures:  earnings yield and return on capital.  Rather than merely looking for the cheapest companies, the goal is to also find good businesses that achieve high returns on capital.  In the interview shown below, Mr. Greenblatt discusses a new fund that he is introducing which will apply the magic formula to global markets.

Forbes has also published a new interview with Joel Greenblatt with some good background information on the magic formula.

Mr. Greenblatt is also the author of You Can Be a Stock Market Genius which we reviewed last year.  Both books are well worth reading.