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Investments glossary

Magic Formula Investing


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— Hunter S. Thompson

Magic formula investing refers to a rules-based, disciplined investing strategy that teaches people a relatively simple and easy-to-understand method for value investing. It relies on quantitative screens of companies and stocks, and is designed to beat the stock market’s average annual returns using the S&P 500 to represent the market return. Put simply, it works by ranking stocks based on their price and returns on capital.

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