- Miracle Formula Investing is based on the Magic Formula Investing principles taught by Joel Greenblatt.
- Long CVS: ROC is 65.19% and Earnings Yield is 8.37%.
- Short RAD: ROC is 14.13% and Earnings Yield is 3.42%.
- Estimated return is 6.13% or 4.29% yield over and above 5-year U.S. Treasuries.
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I admit it was a premature baby that needed some additional care when applied to the real world of investing. I learned the following valuable lessons:
1. Include a 3rd Factor to the Miracle Formula (besides Quality: ROC and Value: Earnings Yield). Pick companies with no mergers & acquisition news. You’re better off putting M&A/Special Situations in the too hard or I’ll pass pile like Buffett because M&A requires a level of knowledge, skills and ability that the average investor probably does not have. Try your hand at more predictable and high probability trades.
2. If you do want to speculate whether a merger will likely go thru then estimate your probabilities with the Herfindahl-Hirschman Index – HHI.