Core Viewpoint - The article discusses the current bullish market in Hong Kong and emphasizes the importance of learning from successful investors like Joel Greenblatt, particularly his "magic formula" for stock selection [3][4]. Group 1: Joel Greenblatt and Gotham Capital - Joel Greenblatt founded Gotham Capital in 1985, achieving an annualized return of 50% in the first ten years, compared to Warren Buffett's 25% during the same period [5]. - Over a 20-year period from 1985 to 2006, Gotham Capital maintained an impressive annualized compound return of 40% [5]. - Greenblatt's influence extends beyond his fund's performance; he established the Value Investors Club and teaches value investing at Columbia University [8][9]. Group 2: Efficient Market Hypothesis - The article critiques the Efficient Market Hypothesis (EMH), which suggests that all available information is reflected in stock prices, arguing that this does not align with reality [14][15]. - Greenblatt challenges the notion of market efficiency by demonstrating price volatility in stable companies, indicating that markets can be inefficient [16]. Group 3: The Magic Formula - Greenblatt's "magic formula" is a stock selection method that focuses on buying good companies at discounted prices, utilizing two main filters: earnings yield and return on invested capital (ROIC) [17][18]. - The first filter assesses company valuation through earnings yield, while the second filter identifies quality companies based on their ROIC [18][19]. - The process involves selecting companies with a minimum market capitalization of $50 million, excluding utility and financial stocks, and then applying the two filters to identify potential investments [19][20]. Group 4: Implementation and Data Selection - The implementation of the magic formula involves regularly buying a diversified portfolio of 20 to 30 stocks over a period of three to five years [21][22]. - Greenblatt emphasizes using last year's data for the magic formula, arguing that it provides reliable insights for selecting a basket of companies despite individual fluctuations [24][25]. Group 5: Longevity of the Strategy - The article notes that the magic formula may not work consistently every year, with periods of underperformance that can lead investors to abandon the strategy [26][27]. - Greenblatt asserts that the effectiveness of value investing relies on its inconsistency, which prevents it from being arbitraged away [29][30].