According to @QCompounding, Joel Greenblatt’s Magic Formula is a simple, disciplined way to find good companies at great prices by targeting high return on capital and high earnings yield for portfolio selection; this aligns with the book’s framework for systematically ranking and buying quality value stocks. Source: @QCompounding. The book defines return on capital as EBIT divided by tangible capital and earnings yield as EBIT divided by enterprise value, ranks stocks on both metrics, buys a basket of roughly 20–30 top-ranked names, and rebalances about annually to maintain exposure to high-quality, attractively priced stocks. Source: Joel Greenblatt, The Little Book That Still Beats the Market (2010 revised edition). Greenblatt’s implementation uses clear screening rules with basic liquidity and market-cap filters and excludes sectors with atypical accounting (e.g., many financials and utilities), making the approach executable as a periodic rebalance across a defined equity universe. Source: Joel Greenblatt, The Little Book That Still Beats the Market (2010 revised edition); MagicFormulaInvesting.com.

According to @QCompounding, investors should target companies whose Owner's Earnings grow at least 12% annually, noting that higher growth generally drives better returns (source: @QCompounding). Owner's Earnings is the distributable cash after necessary reinvestment, a concept outlined by Warren Buffett and used to assess true economic profitability (source: Berkshire Hathaway 1986 Shareholder Letter). Traders can operationalize this guidance by calculating a 3–5 year Owner's Earnings CAGR and filtering for names at or above 12% to identify capital-efficient compounders for potential outperformance (source: @QCompounding).