Specializing

Consider, for instance, how Soros bet against the British Pound in the 1990s which has made him a cited star investor with a single trade. Or also: Bill Gross, who was known as the Bond King for his successful Total Return Fund until markets, his own style, and the less than stellar performance forced him out of the company (PIMCO), which he had made big.

But these stars are typically people specializing in the trading within an asset class or based on a limited set of trading strategies, but can rarely be called investment managers. The latter are responsible for managing the overall portfolios of big asset owners, such as insurance companies, pension funds or sovereign wealth funds. It is this group of people that decides how much of a portfolio to invest where and with these decisions is responsible for the investment outcomes.

The next few paragraphs shall highlight what investment managers do to achieve the outcomes needed by pensioners or beneficiaries of endowments, and where a more institutionalized approach to investments can help the private portfolio.

That’s what you need to beat the market and that’s what the Magic Formula is supposed to do.

As a result of brilliant marketing, promotion and becoming a New York Times bestseller in 2005, Joel Greenblatt has turned the Magic Formula into a key strategy for many in the value investing and mechanical investing community.

Buy at least 20 stocks from the Magic Formula screening tool and then rebalance at the end of the year. Do this and you will beat the market, the book says.