1. The Magic Formula
Greenblatt's most famous published methodology, introduced in The Little Book That Beats the Market (2005). The formula is mechanical and brutally simple: rank the investable universe (typically the top 3,500 US stocks by market cap, excluding financials and utilities) twice. Once by return on capital (operating earnings divided by net working capital plus net fixed assets) and once by earnings yield (operating earnings divided by enterprise value). Sum the two ranks per stock. Buy the twenty to thirty highest-summed-rank stocks, hold each for one year, then rebalance the portfolio annually. The thesis is that this combination identifies good businesses (high return on capital) bought at cheap prices (high earnings yield), which is the essence of value investing reduced to two ratios. The original backtest over 1988 to 2004 reported 17.4 percent CAGR versus the S&P 500's 12.4 percent over the same window. Subsequent academic out-of-sample tests through the 2000s and 2010s have produced weaker but still positive results, with the implementation difficulty (stocks pass the formula but are uncomfortable to hold during drawdowns, causing real-world investors to underperform the backtest) being well documented. The 2005 book is one of the most influential popular investment books of the past twenty years and the namesake of invest-like's Greenblatt-Fit Score.