Open Question to Joel Greenblatt

magic formula of investing creatorThe latest issue of The Manual of Ideas is out. This week the issue contains an interview with Joel Greenblatt of Gotham Capital.

Below is a brief excerpt, followed by a link to the full publication:

I could not get an excerpts from the document, however, a number of questions where asked about the Magic Formula, and modifications i.e. why does Greenblatt exclude banks specifically and not other sectors.

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I have my own question which was not asked in the interview:

Joel Greenblatt’s magic formula consists of companies with high earnings yields and a high ROC. Greenblatt states that the high ROC indicates a company that has a strong moat, since if the company had a weak moat the ROC would decline as other competitors enter. However, this is only true using several years of data, and/or modeling forward ROC. However, one year of ROC does not indicate a moat. In fact, the company can easily achieve a high ROC for a year, and then it tanks as competitors see the high profits that can be made. Why does greenblatt use one year of ROC and not several years and/or modeling forward to next year?

Below is a link to a pdf copy of the interview-Joel Greenblatt Interview