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Business & Economics

The Little Book That Still Beats the Market

By Joel Greenblatt

★★★★★

5.0

John Wiley & Sons

Description

In 2005, Joel Greenblatt published a book that is already considered one of the classics of finance literature. In The Little Book that Beats the Market—a New York Times bestseller with 300,000 copies in print—Greenblatt explained how investors can outperform the popular market averages by simply and systematically applying a formula that seeks out good businesses when they are available at bargain prices. Now, with a new Introduction and Afterword for 2010, The Little Book that Still Beats the Market updates and expands upon the research findings from the original book. Included are data and analysis covering the recent financial crisis and model performance through the end of 2009. In a straightforward and accessible style, the book explores the basic principles of successful stock market investing and then reveals the author’s time-tested formula that makes buying above average companies at below average prices automatic. Though the formula has been extensively tested and is a breakthrough in the academic and professional world, Greenblatt explains it using 6th grade math, plain language and humor. He shows how to use his method to beat both the market and professional managers by a wide margin. You’ll also learn why success eludes almost all individual and professional investors, and why the formula will continue to work even after everyone “knows” it.

While the formula may be simple, understanding why the formula works is the true key to success for investors. The book will take readers on a step-by-step journey so that they can learn the principles of value investing in a way that will provide them with a long term strategy that they can understand and stick with through both good and bad periods for the stock market.

As the Wall Street Journal stated about the original edition, “Mr. Greenblatt...says his goal was to provide advice that, while sophisticated, could be understood and followed by his five children, ages 6 to 15. They are in luck. His ‘Little Book’ is one of the best, clearest guides to value investing out there.”

Summary by AI

Author's Background: Joel Greenblatt is an American hedge fund manager, investor, and adjunct professor at Columbia Business School. He is known for his value investing strategies.
Main Theme: The book simplifies value investing, focusing on a "magic formula" to identify undervalued companies with strong profitability.
Key Points:
- The "magic formula" ranks companies based on two factors:
  - Return on Capital (ROC): Measures how efficiently a company uses its capital to generate profits.
  - Earnings Yield (EY): Measures a company's earnings relative to its market capitalization.
- The formula aims to identify companies that are both high-quality (high ROC) and cheap (high EY).
- The book provides a step-by-step guide on how to use the magic formula.
- It emphasizes the importance of long-term investing and avoiding emotional decisions.
- It advocates for a diversified portfolio of 20-30 stocks.
Reputation:
- Good: The book is praised for its simplicity and accessibility, making value investing understandable for beginners. The magic formula has shown strong historical performance.
- Bad: Some critics argue that the formula's past performance may not guarantee future success. The book's focus on a single formula might oversimplify the complexities of investing. The formula can lead to high portfolio turnover.
Who Should Read It:
- Beginner investors looking for a simple and effective value investing strategy.
- Investors who want a quantitative approach to stock selection.
- Those interested in learning about financial ratios and company analysis.

Readers

Reviews

Peter Trizuliak

@trizo

•

Apr 10

Posted a review 💬