The Magic Formula: How to Buy Cheap Stocks

Joel Greenblatt is managing director and co-chief investment officer at Gotham Asset Management, having co-founded Gotham in 1985. His written work includes the famous tome The Little Book That Beats the Market, published in 2005, which set out his ‘magic formula’ for private investors.

In this interview, he speaks to Dan Jones about the relative cheapness of certain US shares, why he is still a fan of big tech, the origins of the magic formula and its usefulness for investors, and the prospects for the UK equity market.

Timestamps:

00:00 - Intro

00:58 - Investment philosophy

04:27 - Risk-free rate in 2023

06:00 - Are we in a 'normal' environment?

13:40 - Knowing your 'circle of competence'

17:06 - Value versus growth in the last decade

20:40 - The magic formula

27:03 - Cash flow versus EBIT 

32:00 - The UK market

36:23 - Company spin-offs

39:35 - Conglomerates

40:37 - Outro

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