After 60 months of tracking, monthly contributions, and rigorous rebalancing, my long-term experiment with Joel Greenblatt’s Magic Formula in the Brazilian market has come to an end.
From the pandemic uncertainties of 2020 to the final liquidations in late 2025, here is the raw data and the honest truth about applying this strategy in an emerging market like Brazil.
If you don’t know how the formula works, read my [Step-by-Step Guide to the Magic Formula on B3] first
The Strategy & Parameters
The goal was simple: buy “excellent companies” at “bargain prices” using the ranking of EV/EBIT + ROIC.
- Liquidity Filter: I tested various ranges (from 100k to 500k BRL monthly volume).
- Rebalancing: New stocks were added every 3 months, and each position was held for exactly 1 year.
- The Findings: I noticed that lower liquidity often led to higher returns (the “Small Cap” effect), while higher liquidity filters provided more stability but less “Alpha.”
Performance vs. Ibovespa (The Benchmark)
The most impressive part of the study was the ability to generate Alpha (returns above the market average), especially in the early years.
| Year | Magic Formula (Study) | Ibovespa (BRP) | Alpha |
| 2020 | +20.28% | +2.92% | +17.36% |
| 2021 | +45.74% (Acc.) | -11.93% | +57.67% |
| 2022 | -20.38% | +4.69% | -25.07% |
| 2023 | +10.27% | +22.28% | -12.01% |
| 2024 | -10.76% | -10.63% | -0.13% |
| 2025 | +30.25%* | +33.95% | -3.70% |
| *Portfolio liquidated in October 2025. |
Key Takeaways from 5 Years in the Trenches
- Patience is Non-Negotiable: In March 2020, the portfolio dropped -29.45%. Many investors would have quit, but the formula’s resilience proved itself with a +20.28% recovery by year-end.
- The Liquidity Trade-off: To find true “bargains” in Brazil, you often have to look at companies with lower liquidity. This requires “stomach” for volatility.
- Mechanical Discipline: Selling a stock simply because it dropped in the ranking—regardless of personal feelings—is the best way to remove emotional bias from your investments.
- Not All “Cheap” Companies are “Good”: In the Brazilian context, the formula often leads you to turnaround cases rather than established “money machines.” Understanding this risk is crucial.
Final Verdict: Is it Worth it?
Can you use the Magic Formula in Brazil? Yes. It is a powerful tool to identify opportunities that the general market (and the Ibovespa index) often ignores.
However, after 5 years, my conclusion is that while the formula is effective, it shouldn’t necessarily hold 100% of your capital.
It works best as a “satellite” strategy to find undervalued stocks that others aren’t looking at.