Mini test 003 / Stock selection / Track-record transfer
Did a two-line stock formula turn $10,000 into $8.3 million?
A fresh post says Joel Greenblatt compounded money at roughly 40% for twenty years, then gave the same strategy away as the Magic Formula: rank stocks by quality and cheapness, buy the top twenty, and repeat yearly. We checked whether the return and the formula actually belong together.
No. The post joins two real stories into one false result.
Greenblatt did produce an extraordinary hedge-fund record. But in his own interview he describes ten years, 1985 through 1994, and a concentrated portfolio of a few special situations. The $8.3 million figure appears only when roughly 40% is compounded for twenty years. The public Magic Formula came later and uses a diversified, mechanical stock screen.
01 / Where $8.3 million comes from
The arithmetic is easy. The extra decade is doing the work.
USD 10,000 compounded at 40% for twenty years becomes USD 8,366,826. For ten years it becomes USD 289,255. The viral number therefore assumes that the same return continued for a second decade.
In a 2018 interview, Greenblatt corrected his first-decade result to 50% a year before fees. He also explained why it was possible: the fund was small and six to eight ideas usually made up more than 80% of the portfolio. It returned half its outside capital after five years and all of it after ten.
The fair summary: a concentrated hedge fund had an exceptional ten-year run. That is not a twenty-year Magic Formula record.
02 / What the public formula really asks you to do
It is more than two rankings and “buy the top twenty.”
Greenblatt's official screener looks for US-listed companies that are cheap and earn high returns on capital. It excludes financial companies and utilities, allows the investor to choose a minimum company size, and recommends at least 20 to 30 equal positions held for about one year.
The official instructions also warn that trading 20 to 30 stocks every year can be expensive, that an investor should commit for at least three years, and that there is no guarantee of the desired result even then.
That is a rules-based value portfolio—not the small, concentrated special-situations fund that produced Greenblatt's early record.
03 / What the Google lecture actually says
The lesson is discipline, not a free 40% return.
The official Talks at Google page describes a discussion of market efficiency, active versus passive investing, and why most people should index. The public video currently shows about half a million views—not the investment result claimed in the post.
Greenblatt's own formula site says value strategies have often beaten market averages over long periods. It does not claim that a retail investor following this screen received his hedge fund's 40% return for twenty years.
A useful investing idea can survive without borrowing a different portfolio's track record.
04 / What would actually test the strategy
Use the stocks a real investor could identify on each date.
A durable test needs point-in-time financial statements, the full historical stock universe including delisted companies, the formula's accounting adjustments, annual replacements, trading costs, taxes where relevant, and a separate period that was not used to create the rule.
This claim check does not have those inputs, so it does not say whether the Magic Formula works today. It says the USD 8.3 million story cannot be used as that evidence.
Keep the hypothesis. Reject the borrowed track record. Test the public rules on their own terms before using them.
The full receipt
What exactly did we check?
The compounding arithmetic
| Assumption | Ending value | Meaning |
|---|---|---|
| 40% for 20 years | $8,366,826 | The viral headline |
| 40% for 10 years | $289,255 | The same rate over the documented decade |
| 50% gross for 10 years | $576,650 | Greenblatt's before-fee description |
These are mechanical illustrations, not audited investor account values.
Primary and direct sources
The claim came from this X post. The lecture is on the verified Talks at Google channel. The public rules and cautions are on Greenblatt's official Magic Formula FAQ. Greenblatt describes the ten-year fund record, concentration, and returned capital in this direct interview transcript. Gotham confirms that it is the successor to the firm founded in 1985 on its principals page.
Limits
This mini test does not reproduce the Magic Formula from raw point-in-time data, audit Gotham Capital's private accounts, or recommend a stock strategy. It tests whether the public post's time period, arithmetic, and strategy attribution agree with the cited people and published rules.
This is educational research, not personal financial advice.
The next test
See the next claim tested—not merely repeated.
Subscribe, then optionally tell us which investment claim or strategy you want checked next.