Can you use the Magic Formula investing strategy beyond the U.S.? In this article you will see real-world results from Europe, Finland, and Benelux, where the Magic Formula beat the market over decades.
You will learn how to apply it in your own country, step-by-step. Whether you are just starting or already investing, this post gives you a proven, global strategy you can use today. Plus, you will see how to use the Quant Investing screener to build a Magic Formula portfolio with confidence and discipline.
Estimated Reading Time: 6 minutes
Global Success: How the Magic Formula Works Beyond the U.S.
What if I told you one of the best stock-picking strategies isn’t limited to the U.S.? The Magic Formula, developed by Joel Greenblatt, has been proven to work in several markets around the world, including Europe, Finland, and the Benelux region.
In this article, we will show you how the Magic Formula has performed globally and how you can apply it in your own local market. Whether you’re new to investing or already experienced, you’ll get practical steps to find global Magic Formula stocks and build a successful portfolio.
Proven Performance in Europe, Finland, and Benelux
How the Magic Formula Performs in Europe
We tested the Magic Formula in Europe over a 12-year period, and the results were impressive. Over the backtest period from June 1999 to June 2011, the Magic Formula produced returns 152.3% higher than the market.
This shows that the strategy works not just in the U.S., but in Europe as well.
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
The results in Europe were clear: the best-ranked Magic Formula companies (Q1) outperformed those with worse rankings (Q5). This was true for small, medium, and large companies. The best ranked European companies all substantially outperformed the market which returned only 30.54% over the same 12 year period.
No matter where you invest, the Magic Formula’s core ideas—quality and value—help you find opportunities others overlook. That’s what makes it a timeless strategy.
Click here to start finding your own Magic Formula ideas NOW!
Success in Finland
In Finland, the Magic Formula also performed well. A 13-year study from 1997 to 2010 showed that the strategy outperformed the market.
What was interesting in Finland is that researchers used Return on Assets (ROA) instead of the usual Return on Invested Capital (ROIC), and it still worked!.
Just how well did the Magic Formula do in Finland?
Source: The Use of Systematic Value Strategies in Separating The Winners From The Losers: Evidence From The Finnish Markets
As you can see the Magic Formula could definitely have helped you outperform the market (Whole Sample Equal Weighted line above).
Surprising finding - than increases your returns
But the surprising finding of the study is that the best ranked Magic Formula companies (MF Top 25%), thin blue line in chart above, did not perform the best.
You would have gotten better returns if you invested in the companies just below the top 25% of Magic Formula companies (MF Upper Mid 25%) the red line in the chart above.
Performance in Benelux
The Benelux region (Belgium, Luxembourg, and the Netherlands) also saw strong results with the Magic Formula. Over a 20-year period from 1995 to 2014, it beat the market by an average of 7.7% per year.
Imagine consistently beating the market by nearly 8% every year—that’s what this strategy can help you achieve.
How much better would you have done if you used the Magic Formula? The following chart shows this very clearly.
Investor X invested €10,000 in March 1995 using the Magic Formula and at the end of the 20-year period had €113,238 in his investment account. This is 11.3 times the amount he or she started with.
Investor Y also started with an initial investment of €10,000 but invested in the Benelux market index and at the end of 20 years had only €27,182 in his investment account, only 2.7 times his or her starting amount.
Click here to start finding your own Magic Formula ideas NOW!
Applying the Magic Formula to Your Local Market
How to Use the Magic Formula in Any Market
You might be wondering: "Can I use the Magic Formula in my country?" The good news is, yes, you can!
Whether you're in Europe, Asia, or another region, the Magic Formula works if you can find data on ROIC and Earnings Yield. Most financial websites or stock screeners will give you this data.
Here’s how to adjust the Magic Formula for your local market:
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Focus on liquidity: Make sure the companies you pick are easy to trade. Avoid penny stocks or those with very low trading volumes.
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Diversify across industries: In some markets, certain industries dominate. Make sure you spread your investments across sectors to reduce risk.
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Use additional filters: In smaller markets, you can add extra criteria like the Piotroski F-Score or Debt-to-Equity to improve the quality of your stock picks.
Click here to start finding your own Magic Formula ideas NOW!
Step-by-Step Guide to Finding Global Magic Formula Stocks
Using the Quant Investing Screener
Finding Magic Formula stocks globally is a lot easier than you think.
With it you can quickly search for Magic Formula stocks in different markets. Here’s a step-by-step guide to get you started:
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Step 1: Load the Saved Screen
Log in to the Quant Investing screener, then load the Magic Formula screen we have already saved for you. -
Step 2: Select Your Countries or Region
Next choose the countries or regions where you want to find stocks. This is usually where your stockbroker can execute your transactions. For example, you could pick Europe, Asia, or worldwide. -
Step 3: Add a Liquidity Filter
To make sure you’re choosing stocks that are easy to trade, add a filter for minimum trading volume. We recommend a daily traded value at least 10 times your investment in any individual company. This helps you avoid picking stocks that are hard to buy or sell. -
Step 4: Use Additional Filters (Optional)
Depending on your market, you might want to add more filters like low debt or a strong Piotroski F-Score to improve the quality of your picks even further.
Building Your Global Magic Formula Portfolio
Once you’ve screened for stocks, aim to build a portfolio of at least 20-30 companies. This helps reduce the risk of any one stock hurting your returns too much.
Make sure to rebalance your portfolio once a year. This means selling stocks that no longer meet the Magic Formula criteria and replacing them with fresh picks.
Final Tips for Success in Global Markets
Patience and Discipline Are Key
No matter where you invest, the key to success with the Magic Formula is patience and discipline. Sometimes the strategy may underperform for a year or two, but the long-term results are worth the wait. Stick to the formula and don’t let short-term market changes shake your confidence.
Test Before You Invest
If you’re investing in a new market for the first time, start small. This lets you test how the Magic Formula performs in that market before committing more money. Once you’re comfortable with how it works, you can gradually increase your investment.
Conclusion
The Magic Formula is not just a great investment strategy in the U.S.—it works across the globe. With proven performance in regions like Europe, Finland, and Benelux, this strategy has a track record of success.
By following the steps in this article, you can start using the Magic Formula in your own country’s stock market and build a winning portfolio.
Ready to get started? Try the Quant Investing screener today and begin building your global Magic Formula portfolio!
Click here to start finding your own Magic Formula ideas NOW!
FREQUENTLY ASKED QUESTIONS
1. Can I really use the Magic Formula in my own country?
Yes, you can. The Magic Formula works anywhere you can get basic financial data. You just need Return on Invested Capital (ROIC) and Earnings Yield. These are easy to find on most stock screeners.
2. What if my local market is small or not very liquid?
Start by checking for daily trading volume. Only pick stocks that trade at least 10 times more than what you want to invest. This helps you avoid stocks that are hard to buy or sell.
3. How many stocks should I buy using the Magic Formula?
Aim for 20 to 30 stocks. This spreads your risk. If one or two do poorly, the others can balance it out. Rebalance your portfolio once a year by removing stocks that no longer fit the formula and adding new ones.
4. How do I deal with years when the strategy underperforms?
Stay patient. Every good strategy has slow years. The Magic Formula has a long-term track record of beating the market. Do not change your plan because of short-term under performance.
5. Can I improve the Magic Formula for my country?
Yes. In Finland, the strategy worked even when they used Return on Assets (ROA) instead of ROIC. You can test different tweaks using historical data to see what works best in your market. We have found that adding momentum increases Magic Formula returns substantially.
6. How do I actually find Magic Formula stocks globally?
Use the Quant Investing screener. Just load the saved Magic Formula screen, pick your region, and set filters like minimum trading volume. It is fast and simple—even for beginners.
7. How much better is the Magic Formula than just buying an index?
In the Benelux region, someone who invested €10,000 using the Magic Formula ended up with €113,238 after 20 years. Someone who just bought the market had only €27,182. That is a huge difference—11.3x vs 2.7x.
Click here to start finding your own Magic Formula ideas 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. Investments 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
