The Little Book That Beats the Market
Two years in MBA School won't teach you how to double the market's return. Two hours with "The Little Book That Beats the Market" will. Let Joel Greenblatt, Founder and Managing Partner at Gotham Capital (with average annualized returns of 40% for over 20 years) show you how "beating the market" can be made simple and easy.
The Little Book That Beats the Market (Little Books. Big Profits) does more than simply set out the basic principles for successful stock market investing, it provides a "magic formula" that is easy to use and makes buying good companies at bargain prices automatic. Though the formula has been extensively tested and is a clear breakthrough in the academic and professional world, the common sense method is convincingly explained using 6th grade math skills, plain language and humor. Readers will learn how to use this low risk method to beat the market and professional managers by a wide margin.
Along the way, readers will also learn: how to view the stock market; why success eludes almost all individual and professional investors; and why the formula will continue to work even after everyone "knows" it.
Positive Review of Book
This fine little book, The Little Book That Beats the Market, is a significant contribution to the market philosophy known as Value Investing, but unlike other value investing books, Prof. Greenblatt offers readers a simple yet effective formula for finding good companies and great prices, he also demonstrates the 'most satisfactory' (as Ben Graham might have put it) historical returns that this 'magic formula' yielded over the last 17 years. His methodology is sound, to be sure, though one quibble here is that some of the stocks thrown back using his screen are clearly one-hit wonders: specialty pharmaceutical companies whose future earnings are surely questionable.
However, the beauty of Prof. Greenblatt's formula is that it can be scaled up or down in terms of diversification as a 'hedge against ignorance' (as Mr Buffett might say). While still relying upon the magic formula, more sophisticated investors can take a more active, focused approach to their 'magic' portfolio, screening out likely dogs while remaining true to the overall strategy. Contrariwise, less sophisticated investors are advised to diversify broadly to hedge against the dogs in their portfolios.
The key to the approach, as with all value investing approaches, is time, time, time. Patience and discipline are the first virtues of value investing, and must be practiced with Jesuitical commitment for this strategy to work. Buffett and Graham didn't make billions day trading, and neither will magic formula devotees. But you must be patient grasshoppers! Highly recommended read.
(to underscore the importance of patience in this approach, I thought it interesting to note that only 2 of the top 50 cos on a Goldblatt's screen I ran were rated '2' or above for timeliness in the Value line investment survey; and 27 of the 50 weren't rated at all, owing to the fact that they were micro caps.
Negative Review of Book
First off The Little Book That Beats the Market, could have made it's point in half the pages.
It has very very little to say. In would have made a decent magazine article (seriously, that's about the extent of the "meat" of the content).
I'm not very skilled at financial analysis and am not qualified to take apart his formulas but I do agree that he completely ignores the effects of company mismanagement and other criteria that do matter, and asks a tremendous leap of faith in the reader to follow his advice.
The book is Perhaps useful to utterly rank beginners, but even as an inexperienced neophyte who's taken just a little time to educate myself, I found this book had little I had not encountered in even the most cursory reading of investing education books, web articles, and magazines.
Joel Greenblatt is the founder and a managing partner of Gotham Capital, a private investment partnership that has achieved 40% annualized returns since its inception in 1985. He is a professor on the adjunct faculty of Columbia Business School, the former chairman of the board of a Fortune 500 company, the cofounder of ValueInvestorsClub.com, and the author of You Can Be a Stock Market Genius. Greenblatt holds a BS and an MBA from the Wharton School.
Table of Contents
- Chapter One.
- Chapter Two.
- Chapter Three.
- Chapter Four.
- Chapter Five.
- Chapter Six.
- Chapter Seven.
- Chapter Eight.
- Chapter Nine.
- Chapter Ten.
- Chapter Eleven.
- Chapter Twelve.
- Chapter Thirteen.
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Top 150 Public Companies Listed on the Australian Stockmarket as at 29/05/2009
- BHP Billiton
- Westpac Banking Corporation (WBC)
- Commonwealth Bank of Australia (CBA)
- National Australia Bank (NAB)
- Telstra (TLS)
- News Corporation (NWS)
- Woolworths Limited(WOW)
- Woodside Petroleum Limited (WPL)
- Rio Tinto
- Westfield Group (WDC)
- Westfarmers Limited (WES)
- QBE Insurance
- Newcrest Mining Limited (NCM)
- Origin Energy Limited (ORG)
- Santos Limited (STO)
- AMP Limited (AMP)
- Macquarie Group (MQG)
- Foster’s Group Limited (FGL)