In fact, often the near-term prospects for the compaines selected by the magic formula don't look so good. In many cases, the outlook for the next year or two is downright ugly. But that's one reason the magic formula can find companies whose prices seem like bargains. The magic formula uses last year's earnings. If, instead, estimates for this yar's or next year's earnings were used, many of the companies selected by the magic formula might not look like such bargains at all!

— Joel Greenblatt on the magic forumula  

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