Magic formula investing was derived by Joel Greenblatt, he used it to buy a basket of stocks that has high earning yields and a high return on capital. Wikipedia has documented the approach and the formula, you can find the link here. Below is the extraction of the para from the link. The Formula

1. Establish a minimum market capitalization(usually greater than $50 million).
2. Exclude utilityand financial
3. Exclude foreign companies (American Depositary Receipts).
4. Determine company's earnings yield= EBIT / enterprise value.
5. Determine company's return on capital= EBIT / (net fixed assets + working capital).
6. Rank all companies above chosen market capitalizationby highest earnings yield and highest return on capital (ranked as percentages).
7. Invest in 20–30 highest ranked companies, accumulating 2–3 positions per month over a 12-month period.
8. Re-balance portfolioonce per year, selling losers one week before the year-mark and ...

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