Develop a Search Strategy 77the business, it earns 20 cents above that dollar. Over time, busi-
nesses that continue to generate strong returns on invested capital
increase the value of the company and, ultimately, the stock price.
So Greenblatt took these two valuable pieces of data and cre-
ated the Magic Formula list of stocks. The site is merely a list of
stocks based on a minimum company market value that you choose.
The list gives you the business name, its stock symbol, the earnings
yield, and the return on capital. The intuitive concept behind the
Magic Formula is brilliant; value investors should research and ana-
lyze its list of stocks. The site is updated daily so it remains a very
useful tool for stock searches.Value Line
Most investors are familiar with the Value Line Investment Survey
( http://www.valueline.com ). Value Line is one of the oldest and most
respected investment research fi rms around. Most important, it is
an independent research company, so its information is unbiased.
Value Line covers over 3,000 securities in its research database.
Each week, Value Line publishes an issue that covers a couple hun-
dred stocks until the cycle is repeated again each quarter.
What I like about Value Line is the loads of data you get on each
company. On one page, Value Line gives you 10 years of data on
the company. It lists all the necessary fundamentals including sales,
profi ts, margins, and return on capital. Over time, serious investors
should become aware of the universe of Value Line stocks, much
as Buffett did when he went through Moody ’ s investment manuals.
The businesses profi led in Value Line cover all the major industries
and sectors; just knowing them will give you an excellent mental
model of the market.
While the weekly publications are great for general investment
ideas, the Value Line Web site offers a powerful search tool. Each
week along with the publication, Value Line produces preset screenCH005.indd 77CH005.indd 77 9/2/09 11:08:05 AM9/2/09 11:08:05 AM