Do Simple Stock-Picking Formulas Still Work?

Popular quantitative formulas have delivered strong returns, but there is no one-size-fits-all investing solution.

Formula investing promises investors a systematic, rules-based approach to outperforming the market. In their December 2024 paper, Marcel Schwartz and Matthias Hanauer evaluated four of the most popular quantitative formulas: Joseph Piotroski’s F-Score, Joel Greenblatt’s Magic Formula, Tobias Carlisle’s Acquirer’s Multiple, and Pim van Vliet and David Blitz’s Conservative Formula. They tested their effectiveness over an extensive period and within a unified framework.

The study set out to answer a fundamental question: Do these well-known investing formulas still deliver superior returns, especially in more recent years? The F-Score is the sum of nine binary signals measuring the financial strength of a firm, distinguishing financially weak from financially strong firms among value stocks. The central idea behind the Magic Formula is to buy high-quality companies at attractive prices, identified by combining a company’s return on capital with its earnings yield. The Acquirer’s Multiple focuses solely on a stock’s enterprise multiple. And the Conservative Formula selects low-volatility stocks that exhibit the highest momentum and net payout yield.

You can read the rest of my Morningstar article here.