Greenblatt goes on to suggest that an investor ought to build a portfolio of about 25 to 30 of these Magic Formula stocks. He recommends buying five to seven of them every two to three months. After a given stock has been held for a year, it is sold and replaced with another one from the updated Magic Formula list. Greenblatt’s back-testing showed that these Magic Formula stocks have generated returns as high as 20 percent to 30 percent annualized. It trounces the S&P 500—with no thinking or analysis required.
