Only These 4 Investing Strategies Actually Work – New Study

Wall Street loves complexity. It thrives on convoluted theories, machine-learning algorithms, and a parade of PhDs trying to reinvent the wheel.

But let's cut through the noise and focus on what works.

Marcel Schwartz and Matthias Hanauer's recent study on formula investing doesn't introduce a brand-new strategy. Instead, it tests four well-known formulas—Piotroski's F-Score, Greenblatt's Magic Formula, Carlisle's Acquirer's Multiple, and van Vliet's Conservative Formula—across decades of market history.

And, guess what?

The old-school methods still work, but not without caveats.

The Four Investing Formulas

1. Piotroski's F-Score – Developed by Joseph Piotroski, this formula evaluates companies based on nine fundamental criteria, assessing profitability, financial strength, and operating efficiency. It's a tool to separate fundamentally strong value stocks from potential value traps.
2. Greenblatt's Magic Formula – Introduced by Joel Greenblatt, this formula ranks stocks based on earnings yield and return on capital, aiming to identify companies that are both cheap and high-quality.
3. Carlisle's Acquirer's Multiple – Created by Tobias Carlisle, this formula focuses purely on valuation, using enterprise value-to-operating earnings to find deeply undervalued companies.
4. van Vliet's Conservative Formula – This strategy ranks stocks based on low volatility, strong momentum, and high net payout yield, aiming to balance risk and reward with a more defensive approach.

The takeaway from this study is that all four formulas produce market-beating results. That's important because it confirms what the best value investors already know: investing systematically in stocks that are cheap, high-quality, or low-volatility works over time. The problem? The formulas don't always outperform, and in some periods, they take a serious beating.

Let's break it down. The Acquirer's Multiple, which focuses on deeply undervalued stocks based on enterprise value, produced the highest raw returns when ranking stocks by deciles. That aligns with what we already know—buying cheap works. But the Conservative Formula, which emphasizes low-volatility, high-momentum, and net payout yield, produced the best risk-adjusted returns and CAPM alpha. Meanwhile, the Magic Formula showed the best ability to generate excess return after controlling for common market factors.

What does this tell us? First, valuation matters, but there's a tradeoff. Cheap stocks may offer higher returns, but they're often the ones that suffer the most in downturns. Meanwhile, combining factors like momentum and quality can reduce risk while still delivering solid returns. This is classic value investing wisdom: don't just buy cheap stocks—buy the right cheap stocks.

Here's the reality: the formulas work, but they're not invincible. The study finds that these strategies, while still beating the market post-2000, have shown performance decay. Why? Two big reasons. First, markets have become more efficient. The rise of quant funds, increased liquidity, and algorithmic trading have reduced the effectiveness of simple factor-based strategies. Second, behavioral biases haven't disappeared, but they evolve. Investors aren't blindly ignoring quality and profitability as much as they used to.

Look at 2018-2020, a period referred to as the “Quant Winter.” Value strategies, including formula-based ones, got crushed. The Acquirer's Multiple and F-Score strategies took heavy hits, largely because the value factor was getting slaughtered while expensive growth stocks ran wild. This is why value investors need discipline—sticking to the strategy when it's painful is what leads to long-term outperformance.

If you're managing your own money, which formula should you follow? The study suggests that, in the modern market, a combination of formulas might be best. The Magic Formula's blend of valuation and profitability still holds up well, making it a strong candidate. If you're a more conservative investor, the Conservative Formula offers lower drawdowns and higher risk-adjusted returns, which makes sense for those who prioritize stability.

But if you're a deep-value investor looking for the biggest bargains, the Acquirer's Multiple still delivers the highest raw returns, assuming you have the stomach for the volatility. Meanwhile, the F-Score remains a useful tool to filter out the garbage among value stocks.

Formula investing works, but it's not a free lunch. It requires patience, discipline, and the ability to endure tough periods. The key takeaway from this study is that even in a market dominated by algorithms and quant funds, these simple, systematic approaches still provide an edge. The game hasn't changed—it's just evolved. Smart investors will adapt, refine, and stick to strategies that have been tested across decades. As always, the real money is made by those who can weather the storms and stay the course.

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