Magic Formula investing

Hello there! Are you curious about Magic Formula Investing? I'll do my best to explain it to you like you're five!

So, imagine you're at a toy store and you want to buy some toys. You only have a certain amount of money, but you want to get the best toys for your money. Magic formula investing is kind of like that, but with stocks instead of toys!

Magic formula investing is a way of picking stocks to invest in based on two things: the company's profitability and how cheaply you can get the company's stock.

To find companies that are profitable, we use something called return on capital. Return on capital just means how much money a company makes on the money it has invested in its business. If a company makes a lot of money compared to how much it has invested, that's a good sign that it's profitable.

The second part of magic formula investing is finding cheap stocks. To do that, we use something called earnings yield. This just means how much money a company is making compared to the price of its stock. If a company is making a lot of money but its stock is cheap, that's a good sign that it might be a good investment.

So, magic formula investing basically looks for companies that are both profitable and have cheap stocks. If we can find companies that meet both of those criteria, they might be good investments!

Of course, there's a lot more that goes into investing than just the magic formula. But it's a good starting point to help us pick good companies to invest in. Just like how you want to get the best toys for your money, we want to get the best stocks for our money!