The formula achieved the greatest performance with the smal est-capitalization stocks studied.
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Earnings yield was measured by calculating the ratio of pretax operating earnings (EBIT) to enterprise value (market value of equity41 + net interest-bearing debt).
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General Screening Instructions
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Now that we have that settled, we need to discuss a few simple ways to find our magic formula stocks. There are many choices for screening packages to help us sort through the universe of available stocks,
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It’s not that they won’t have the potential to make a lot of money from what they learn. It’s that there are probably higher and better uses for their time and intel ect.
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There ain’t no tooth fairy! 25
That’s right. On Wal Street, money won’t magical y appear under your pil ow. There’s no one to tuck you in, no one to take care of you, and no one you can turn to for good advice.
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Even professional research analysts and money managers have a tough time making accurate earnings predictions for individual companies.
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Rather than just blindly choosing stocks that catch your fancy or blindly accepting the output of the magic formula, how about combining both strategies?
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Over three-year periods, if you fol owed the magic formula, you would never have lost money.