You Can Be a Stock Market Genius

Submitted by Book Library on 10 March, 2010 - 17:36

Fund manager Joel Greenblatt has been beating the Dow (with returns of 50 percent a year) for more than a decade. And now, in this highly accessible guide, he's going to show you how to do it, too. You're about to discover investment opportunities that portfolio managers, business-school professors, and top investment experts regularly miss uncharted areas where the individual investor has a huge advantage over the Wall Street wizards. Here is your personal treasure map to special situations in which big profits are possible, including:

  • Spin-offs
  • Restructurings
  • Merger Securities
  • Mergers
  • Rights Offerings
  • Recapitalizations
  • Bankruptcies
  • Risk Arbitrage

This is a practical and easy-to-use investment reference, filled with case studies, important background information, and all the tools you'll need. All it takes is a little extra time and effort and You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits.

Positive Review of Book

Okay, so the title of the book leaves something to be desired, but that is the ONLY part of this book that falls short. Joel Greenblatt has written an excellent book on profiting from special situations. That's fortunate for the rest of us, since so far as I can tell, this is the ONLY book that provides an overview of event-driven investing. Note that I said "overview"--it's by no means definitive, nor does it claim to be. Certainly more rigorous treatments of risk arbitrage exist. However, this is the only book I'm aware of that is dedicated to explaining merger securities, spinoffs, recapitalizations, bankruptcy and yes, risk arbitrage.

The book's format is well thought out: each chapter explains the how and why of investing in one particular corporate event, and then utilizes case studies to ram the point home. The case studies are interesting, reading at times like a novel. The tone is lighthearted and endearing throughout, and the frequent jokes, although usually kitschy, hit the mark nonetheless. (One gem: "There are three types of people in the world--those who can count, and those who can't.") This book is not for everyone, however.

Beginners should first read Peter Lynch, Ben Graham, and Phillip Fisher before tackling this one. Greenblatt assumes a reasonable degree of comfort with financial statements and value investing strategies on the part of the reader. The use of LEAPS and options in special situations is covered, but should be avoided by all save for the most advanced investors (as per the author's advice). Also, professionals working in the field of event-driven investments would probably find little they did not already know. That being said, the book reads quickly, so a pro would be little disadvantaged for reading it. Finally, it's nice to know that the author can walk the walk as well as talk the talk. Greenblatt publishes his firm's audited returns over a ten-year period at the end of the book, and they are out of this world. We're talking an average annual return of 50% for ten years. This book is not a case of "Those who can, do; those who can't, teach." Greenblatt can, and he does. Highly recommended.

Negative Review of Book

I'm surprised this book gets such praise from other reviewers. Besides revealing a few investment areas that hedge funds exploit, there isn't any information that is practical.

Essentially, the book reveals 3 or 4 areas of investment securities that are typically ignored by institutions and retail investors that shouldn't be. Since these areas are ignored, they can present an opportunity. These are spin-offs, mergers securities, rights offerings, and warrants. The book then highlights examples where the hedge fund made a ton of money buying these securities. I would have preferred more in depth analysis of how they came to the decision to invest in these companies/opportunities instead of a list of there greatest hits. The worst hits were not really mentioned. It just seemed arrogant to discuss only your winners and not more of the bad trades. After all, learning from mistakes is extremely valuable.

Anyways, while spin-off, rights offerings, etc are interesting, the only advice given to play these opportunities was basically:

  1. Read the Wall Street Journal
  2. Analyze the ones you find interesting
  3. Lean towards ones with high management ownership.

Zero information was given about how to buy warrants, rights offerings, or odd merger securities. If I called up my broker and asked to buy warrants, he'd be clueless. I could not find any information at online brokers for the ticker symbols or execution details. How do you acquire a rights offering or strange merger securities without a personal broker at Goldman Sachs? Good luck finding out, because this book doesn't reveal how. Just read the WSJ, SEC filing, and bet with management. Interestingly, I thought The Little Book that Beats the Market was much better manual for the average retail investor. It too contains the belittling tone and childish humor, but at least he claims the book was written for his kids. Nevertheless, I'd still recommend it. However, there was a line in this book that dismissed quantitative strategies. Maybe the author changed his mind.

Author Biography

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 the Value Investors Club website, 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

  1. Follow the Yellow Brick Road Then Hang a Right
  2. Some Basics Don't Leave Home Without Them
  3. Chips Off the Old Stock: Spinoffs, Partial Spinoffs, and Rights Offerings
  4. Don't Try This at Home: Risk Arbitrage and Merger Securities
  5. Blood in the Streets (Hopefully, Not Yours): Bankruptcy and Restructuring
  6. "Baby Needs New Shoes" Meets "Other People's Money": Recapitalizations and Stub Stocks, LEAPS, Warrants, and Options
  7. Seeing the Trees Through the Forest
  8. All the Fun's in Getting There

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