How to Use Joel Greenblatt Stock Screener for Better Investment Decisions
A Joel Greenblatt stock screener ranks every stock in the market by two factors: earnings yield and return on capital. The stocks that score highest on both metrics float to the top. Greenblatt's backtests showed this approach returned approximately 23.7% annually from 1988 to 2004 versus 12.4% for the S&P 500. This tutorial walks you through setting up and running the screen from scratch, including which settings to use, what to look for in results, and how to avoid common setup mistakes.
Key Takeaways
- The Joel Greenblatt stock screener uses two metrics: EBIT/Enterprise Value (earnings yield) and EBIT/(Net Working Capital + Net Fixed Assets) (return on capital)
- Exclude financial stocks, utilities, and companies with market caps below $50 million
- A portfolio of 20 to 30 top-ranked stocks, rebalanced annually, captures the full effect
- Adding a Piotroski F-Score filter of 6+ reduces value trap exposure by roughly 60%
- The ValueMarkers screener handles the calculations automatically across 73 exchanges
Step 1: Understand What the Screener Measures
Before touching any tool, you need to know exactly what a Joel Greenblatt stock screener calculates.
Earnings Yield = EBIT / Enterprise Value
This is not the same as the standard E/P ratio. EBIT (earnings before interest and taxes) captures operating profitability before capital structure and tax differences distort the picture. Enterprise Value (market cap + debt - cash) reflects the true price tag of buying the entire business.
A stock with a P/E of 12 might seem cheap, but if it carries $8 billion in debt, its enterprise value tells a very different story.
Return on Capital = EBIT / (Net Working Capital + Net Fixed Assets)
This measures how efficiently the business converts its tangible assets into operating earnings. Microsoft's ROIC of 35.2% means it generates $35.20 of earnings for every $100 of deployed capital. Compare that to a capital-heavy manufacturer earning 8% on capital, and you see why Greenblatt values this metric.
Step 2: Set Up Your Screening Universe
The Joel Greenblatt stock screener requires specific exclusions to work properly.
Exclude these categories:
- Financial companies (banks, insurance, REITs) because their capital structures make EBIT calculations unreliable
- Utilities because their regulated returns distort ROC
- Companies with market capitalization below $50 million to avoid illiquid stocks
- Companies with negative EBIT (unprofitable businesses cannot be ranked)
- ADRs and foreign listings if you want to avoid currency complications (optional)
Recommended starting universe:
- US-listed common stocks on NYSE, NASDAQ, and AMEX
- Market cap above $50 million (Greenblatt's recommendation) or above $1 billion for large-cap only
On the ValueMarkers screener, you can set these filters in the sidebar. The platform covers 73 global exchanges with 120+ indicators, so you can also run the screen on European, Asian, or emerging market stocks if desired.
Step 3: Run the Dual Ranking
This is the core of the Joel Greenblatt stock screener. Each stock gets two separate ranks.
Ranking process:
- Sort all stocks by earnings yield from highest to lowest. The stock with the highest earnings yield gets rank 1.
- Sort all stocks by return on capital from highest to lowest. The stock with the highest ROC gets rank 1.
- Add both ranks for each stock. The combined score determines the final ranking.
Example calculation:
| Stock | Earnings Yield | EY Rank | ROC | ROC Rank | Combined |
|---|---|---|---|---|---|
| Stock A | 15.2% | 3 | 38.1% | 8 | 11 |
| Stock B | 11.8% | 12 | 45.3% | 2 | 14 |
| Stock C | 18.4% | 1 | 12.1% | 85 | 86 |
| Stock D | 9.3% | 28 | 32.4% | 14 | 42 |
Stock A has the best combined rank (11) even though it is neither the cheapest nor the highest quality individually. Stock C, despite having the highest earnings yield, ranks poorly overall because its low return on capital suggests it might be cheap for a reason.
This is the insight that makes Greenblatt's approach different from a simple low P/E screen.
Step 4: Select Your Portfolio
Greenblatt recommends selecting 20 to 30 stocks from the top of the combined ranking. Here is why the number matters.
Why not 5 or 10 stocks?
Too few stocks exposes you to individual company risk. In any given year, two or three Magic Formula picks will be genuine value traps. With only 5 stocks, one bad pick reduces your portfolio by 20%. With 30 stocks, one bad pick costs you 3.3%.
Why not 50 or 100 stocks?
Too many stocks dilutes the edge. The Magic Formula's outperformance is concentrated in the top-ranked names. Research shows the top 30 outperform the top decile (roughly 180 stocks) by approximately 4 percentage points annually.
Building the portfolio over time:
Do not buy all 20 to 30 stocks on the same day. Greenblatt recommends spreading purchases over two to three months.
- Month 1: Buy stocks ranked 1 through 7
- Month 2: Buy stocks ranked 8 through 14
- Month 3: Buy stocks ranked 15 through 20 (or 30)
This staggering approach smooths your average entry price and reduces the risk of buying at a short-term market peak.
Step 5: Apply Secondary Filters
The pure Magic Formula screen does not check financial health. Adding secondary filters reduces your exposure to value traps without significantly reducing the number of candidates.
Recommended secondary filters:
| Filter | Threshold | Purpose |
|---|---|---|
| Piotroski F-Score | 6 or higher | Confirms financial health and improving fundamentals |
| Altman Z-Score | Above 2.5 | Screens out near-bankruptcy companies |
| Debt-to-Equity | Below 1.5 | Avoids over-leveraged businesses |
| Free Cash Flow | Positive | Confirms real cash generation, not accounting earnings |
Apple's Piotroski score of 7, Altman Z of 8.2, and positive free cash flow represent the kind of quality profile you want to see in your final selections. Visa, with a Piotroski of 8 and ROIC of 32.4%, is another example of what passes through both the primary and secondary filters.
Step 6: Set Your Rebalancing Schedule
The Magic Formula requires annual rebalancing. Greenblatt's specific tax optimization approach works like this.
For losing positions (stocks down from purchase price): Sell just before the 12-month holding mark. This generates short-term capital losses, which you can use to offset gains elsewhere in your portfolio.
For winning positions (stocks up from purchase price): Hold past the 12-month mark, then sell. This qualifies for long-term capital gains tax treatment, which is taxed at a lower rate than short-term gains.
After selling: Replace every sold position with the current top-ranked stock from a fresh screen run. This keeps your portfolio fully invested in the highest-ranked names at all times.
Step 7: Track and Review Results
Set up a tracking system before you buy the first stock. Here is what to record.
- Purchase date and price for each stock
- Combined rank at time of purchase
- Earnings yield and ROC values at purchase
- Piotroski F-Score at purchase
- Sell date and price
- Return for each position
- Portfolio return versus benchmark (S&P 500 or equivalent)
The ValueMarkers guru tracker maintains these metrics for you automatically. You can see which stocks currently pass the Greenblatt criteria, track your positions, and compare your performance to the index.
Common Mistakes to Avoid
Mistake 1: Using P/E instead of EBIT/EV. Standard P/E ratios do not account for debt. A company with a P/E of 8 and $10 billion in debt is far more expensive than it appears. Always use EBIT / Enterprise Value for the earnings yield calculation.
Mistake 2: Skipping the exclusions. Financial stocks will dominate your screen if you include them, and the results will be misleading. Banks report earnings differently, and their return on capital calculations require different formulas.
Mistake 3: Buying too few stocks. A 5-stock Magic Formula portfolio has far more volatility and much higher value trap risk than a 20-stock portfolio. Do not concentrate.
Mistake 4: Abandoning the strategy after 6 months of underperformance. Greenblatt's own data shows the formula underperforms the market in roughly 40% of all one-year periods. The edge appears over three to five year rolling windows.
Mistake 5: Checking prices daily. The Magic Formula is designed for annual rebalancing. Daily monitoring creates emotional pressure to sell early or abandon the system. Check quarterly at most.
Comparing Greenblatt Screener Options
Several platforms offer Magic Formula screening. Here is how they compare.
| Feature | ValueMarkers | Greenblatt's Website | Finviz | Stock Rover |
|---|---|---|---|---|
| EBIT/EV ranking | Yes | Yes | No (P/E only) | Partial |
| True ROC calculation | Yes | Yes | No | Partial |
| Global coverage | 73 exchanges | US only | US only | US/Canada |
| Piotroski overlay | Yes | No | No | Yes |
| DCF intrinsic value | Yes | No | No | Yes |
| VMCI Score | Yes | No | No | No |
| Custom filters | 120+ indicators | Limited | 60+ | 100+ |
The original magicformulainvesting.com website provides a basic screen but lacks the ability to add secondary quality filters. General-purpose screeners like Finviz do not replicate Greenblatt's exact calculations.
Further reading: SEC Investor.gov · FINRA
Why magic formula screener Matters
This section anchors the discussion on magic formula screener. The detailed treatment, formula, and worked examples appear in the body of this article above. The points below summarize the most important takeaways for value investors who want to apply magic formula screener in real portfolio decisions. ValueMarkers exposes the underlying data on every covered ticker via the screener and stock profile pages, so the concepts in this article translate directly into actionable filters.
Key inputs for magic formula screener
See the main discussion of magic formula screener in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using magic formula screener alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Sector benchmarks for magic formula screener
See the main discussion of magic formula screener in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using magic formula screener alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Related ValueMarkers Resources
- Margin of Safety — Margin of Safety expresses how cheaply a stock trades relative to its fundamentals
- Graham Number — Graham Number captures how cheaply a stock trades relative to its fundamentals
- Piotroski F-Score — Piotroski F-Score captures the reliability of reported earnings versus underlying cash flow
- Joel Greenblatt — related ValueMarkers analysis
- Value Investing Joel Greenblatt — related ValueMarkers analysis
- Concentrated Vs Diversified Portfolio Pros And Cons — related ValueMarkers analysis
Frequently Asked Questions
what happens if the stock market crashes
A stock market crash typically creates more Magic Formula opportunities, not fewer. When prices fall broadly, earnings yields rise across the market, and high-quality companies with strong returns on capital become available at deep discounts. Greenblatt's backtested data shows the Magic Formula outperformed most dramatically in recovery periods following market crashes.
what time does the stock market open
US stock markets (NYSE and NASDAQ) open at 9:30 AM Eastern Time on business days. Pre-market trading begins as early as 4:00 AM ET. For Magic Formula investing, timing during the day matters far less than following the annual rebalancing schedule, since you are holding positions for 12 months.
are stock markets closed today
US stock markets close on nine federal holidays each year: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving, and Christmas. They also close early at 1:00 PM ET on the day before Independence Day, Black Friday, and Christmas Eve.
what time does the stock market close
US stock markets close at 4:00 PM Eastern Time. After-hours trading extends until 8:00 PM ET on most brokerages. For Greenblatt-style investing, closing prices are used for calculating daily returns, but the annual rebalancing approach means exact closing times are not a significant factor in your investment process.
when does the stock market open
The NYSE and NASDAQ open at 9:30 AM Eastern Time, Monday through Friday, excluding market holidays. If you are running a Joel Greenblatt stock screener, use closing prices from the previous trading day for your calculations. Screening data should be based on the most recent quarterly filings, which update on a rolling basis.
why is the stock market down today
Daily market movements are driven by news events, economic data releases, interest rate expectations, and investor sentiment. For Magic Formula investors, daily declines are irrelevant to the strategy. Greenblatt specifically designed the system to ignore short-term price movements and focus on 12-month holding periods based on fundamental valuations.
Start Screening With the Magic Formula
The Joel Greenblatt stock screener is one of the most well-tested quantitative value strategies available to individual investors. Follow the steps in this tutorial, stick to the 20 to 30 stock portfolio size, add Piotroski and Altman Z-Score filters, and commit to annual rebalancing.
Use the ValueMarkers guru tracker to run the complete Magic Formula screen across 73 global exchanges. Layer in 120+ fundamental indicators, including the VMCI Score, to build a portfolio that combines Greenblatt's value framework with modern quality metrics.
Written by Javier Sanz, Founder of ValueMarkers
Last updated April 2026
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Disclaimer: This content is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.