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The Little Book That Still Beats the Market
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.”
208 pages, Hardcover
First published January 1, 2007
1148 people are currently reading
9591 people want to read
About the author
Joel Greenblatt
23 books464 followersJoel Greenblatt is an American hedge fund manager and founder of Gotham Capital. He is also an academic and a writer. He is also an adjunct professor at the Columbia University Graduate School of Business. He is the former chairman of the board of Alliant Techsystems and founder of the New York Securities Auction Corporation.
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Displaying 1 - 30 of 554 reviews
March 2, 2011
I'm far from a financial expert (don't ask me about my own portfolio... I tend to leave money in CDs and mutual funds and forget about it). However, I have done a bit of reading, and know enough to smell BS or something that has the ring of truth.
Greenblatt's book is aimed at the very naive (in the sense of not knowing much, not in the sense of being stupid or gullible) investor. That is, the average American who thinks s/he can use "common sense" and a few hot tips or some "expert opinions" on TV to pick good stocks. The early chapters are a very, very simple explanation of how the stock market works. Simple enough for a ten-year-old. Then he goes on to explain his "magic formula," which might sound like hucksterism, but basically it's a highly simplified version of Benjamin Graham's "value investing" strategy. (Graham was the guy who taught Warren Buffet.) The idea is basically: Buy high-value companies that are currently priced too low, do this consistently, and most importantly (and the reason why everyone isn't doing it): hang on for years. Greenblatt spends a lot of time emphasizing this: the market goes up and down, and you will see your portfolio go down, sometimes for years consecutively. The only reason following his or any strategy makes sense is if you believe that over the long run, it will perform well with the peaks outweighing the valleys. Most people will be enamored of a strategy until they've been watching all their stocks go down, down, down for two years straight (which is bound to happen now and then) and then they panic, sell, and move to some more promising strategy.
Greenblatt shows pretty compelling evidence that value investing does work, and consistently beats the market over a time frame of 5, 10 or 30 years, even with periodic dips and recessions. And he gives step by step instructions on how to pursue this strategy. But the main thing is you have to believe in it enough to stick with it, even during temporary periods where even the market average is beating your results.
Also, important caveat: he uses historical information and he explains the principles behind the strategy (i.e., which underly Graham's value investment model) in a simple and clear way, so they really do make sense. But, the stock market is a capricious beast: no one can be sure that for the next thirty years it won't suddenly start behaving in a wildly different manner. So, no guarantees, no matter how much sense anyone's advice seems to make.
Greenblatt also glosses over a few things, like fees (even for intermittent stock purchases, the fees can add up), and he barely touches on taxes, which can also take a bite out of your investment. He does mention IRAs, but does not explain them. That's understandable; this is a slim book and going into taxes and retirement funds and exactly where and how to buy stocks would bloat it quickly. But while I think his advice is sound, this book alone doesn't quite give you enough information to run out and start investing. But it will certainly give you a good start. Most importantly, if you take his advice, even if you don't follow his strategy precisely, you'll know better than to try day-trading or other short-term strategies (he tells the reader outright that unless you're a professional business analyst and probably not even then, you should not try to stock-pick on your own), and you'll be ready to commit to investing for the long term.
Greenblatt's book is aimed at the very naive (in the sense of not knowing much, not in the sense of being stupid or gullible) investor. That is, the average American who thinks s/he can use "common sense" and a few hot tips or some "expert opinions" on TV to pick good stocks. The early chapters are a very, very simple explanation of how the stock market works. Simple enough for a ten-year-old. Then he goes on to explain his "magic formula," which might sound like hucksterism, but basically it's a highly simplified version of Benjamin Graham's "value investing" strategy. (Graham was the guy who taught Warren Buffet.) The idea is basically: Buy high-value companies that are currently priced too low, do this consistently, and most importantly (and the reason why everyone isn't doing it): hang on for years. Greenblatt spends a lot of time emphasizing this: the market goes up and down, and you will see your portfolio go down, sometimes for years consecutively. The only reason following his or any strategy makes sense is if you believe that over the long run, it will perform well with the peaks outweighing the valleys. Most people will be enamored of a strategy until they've been watching all their stocks go down, down, down for two years straight (which is bound to happen now and then) and then they panic, sell, and move to some more promising strategy.
Greenblatt shows pretty compelling evidence that value investing does work, and consistently beats the market over a time frame of 5, 10 or 30 years, even with periodic dips and recessions. And he gives step by step instructions on how to pursue this strategy. But the main thing is you have to believe in it enough to stick with it, even during temporary periods where even the market average is beating your results.
Also, important caveat: he uses historical information and he explains the principles behind the strategy (i.e., which underly Graham's value investment model) in a simple and clear way, so they really do make sense. But, the stock market is a capricious beast: no one can be sure that for the next thirty years it won't suddenly start behaving in a wildly different manner. So, no guarantees, no matter how much sense anyone's advice seems to make.
Greenblatt also glosses over a few things, like fees (even for intermittent stock purchases, the fees can add up), and he barely touches on taxes, which can also take a bite out of your investment. He does mention IRAs, but does not explain them. That's understandable; this is a slim book and going into taxes and retirement funds and exactly where and how to buy stocks would bloat it quickly. But while I think his advice is sound, this book alone doesn't quite give you enough information to run out and start investing. But it will certainly give you a good start. Most importantly, if you take his advice, even if you don't follow his strategy precisely, you'll know better than to try day-trading or other short-term strategies (he tells the reader outright that unless you're a professional business analyst and probably not even then, you should not try to stock-pick on your own), and you'll be ready to commit to investing for the long term.
January 30, 2011
Wish I hadn't wasted any money on this one. Although I am a big proponent of value investing and wanted to give Greenblatt a chance, this book is far too simple to be useful to anyone with a more than a passing interest in the stock market. Return on Capital and Earnings Yield are not terrible filters to start off with, but I do believe there is more to successful value investing than applying a simple formula.
Greenblatt is spot on when he says most people end up losing money because of impatience and lack of discipline in following a consistent strategy. However, his formula will be too opaque for non-financially literate investors and too over-simplified for seasoned investors to trust and stick with over the long run - undoubtedly one of the key success factors to value investing... If one does favor this type of formula investing, then I think the best option is a Dimensional Fund Advisors (DFA) low-fee index enhanced fund which rebalances a broad portfolio of stocks every so often based on value factors similar to those proposed by Greenblatt (and has a long track record of above average performance). For me the biggest issue to this type of investing is that it doesn't avoid large bubbles that periodically form in the market. If you are always fully invested even in the height of an unfettered, over-confident bull market then you miss a central Graham tenet on how to deal with Mr. Market - i.e. sell when he is unrealistically confident. I believe pulling back from frothy markets played a large role in the success of both Buffet and Graham.
To conclude, this book is written for complete novices to the stock market and contains very little red meat for more serious investors. The only pro was not wasting too much time as it's an extremely quick read. This will be the last Greenblatt book I ever read.
If you want a better alternative pick up The Intelligent Investor by Ben Graham or for a simpler but still credible alternative pick up The Little Book on Value Investing by Christopher Browne. Both are excellent reads that will unquestionably help you invest sensibly over the long term.
Greenblatt is spot on when he says most people end up losing money because of impatience and lack of discipline in following a consistent strategy. However, his formula will be too opaque for non-financially literate investors and too over-simplified for seasoned investors to trust and stick with over the long run - undoubtedly one of the key success factors to value investing... If one does favor this type of formula investing, then I think the best option is a Dimensional Fund Advisors (DFA) low-fee index enhanced fund which rebalances a broad portfolio of stocks every so often based on value factors similar to those proposed by Greenblatt (and has a long track record of above average performance). For me the biggest issue to this type of investing is that it doesn't avoid large bubbles that periodically form in the market. If you are always fully invested even in the height of an unfettered, over-confident bull market then you miss a central Graham tenet on how to deal with Mr. Market - i.e. sell when he is unrealistically confident. I believe pulling back from frothy markets played a large role in the success of both Buffet and Graham.
To conclude, this book is written for complete novices to the stock market and contains very little red meat for more serious investors. The only pro was not wasting too much time as it's an extremely quick read. This will be the last Greenblatt book I ever read.
If you want a better alternative pick up The Intelligent Investor by Ben Graham or for a simpler but still credible alternative pick up The Little Book on Value Investing by Christopher Browne. Both are excellent reads that will unquestionably help you invest sensibly over the long term.
March 18, 2019
As a general rule, if a book promises you a magical money-making formula that works if and only if you truly believe in it, close that book. I do not know whether the author's claims are true or not but the way he sells it screams "scam" to me. In fact, it looks like a genius ponzi scheme which lets you buy stocks and then advertise them to your followers, thus increasing their price. Not to mention the income from the sales of the book itself. On the positive side, the introduction explains some financial terminology in simple terms and the book is written in a very casual tonne.
February 8, 2021
What a waste of time. I’m not sure I should even call it a book. It sounded like some unnecessarily long and underwhelming blog post. Too repetitive and poorly written. Extremely pointless conclusions, e.g. “If you answered that 30% is obviously better than 20% and 10% you would be correct!” Seriously?
The little books by Christopher H. Browne and John C. Bogle are a much better choice than this.
The little books by Christopher H. Browne and John C. Bogle are a much better choice than this.
December 21, 2015
This is a fantastic read. It's short and succinct. I like that Joel uses humorous writing to make something accounting less boring.
In a net shell, he is promoting a strategy he calls "Magic Formula Investing". Building on the time-tested strategies of Ben Graham and Warren Buffet, Joel tells us to invest in companies that return very high return on capital AND high profit per share.
He also sets the right expectations, by providing enough data to prove that it works (mostly), and that it works if you have patience. He also wants us to know that investing in individual stocks is not for everyone (surprise. Graham and Buffett have said the same).
After some digging, I found that Joel has his own mutual fund with holdings chosen using the Magic Formula: https://www.google.com/finance?q=MUTF...
The fund has returns 18%+ over 3-year period, beating the market.
Formula:
1. Return on Capital = EBIT / (Net working capital + net fixed asset)
2. Earning yield = EBIT / Enterprise Value
In a net shell, he is promoting a strategy he calls "Magic Formula Investing". Building on the time-tested strategies of Ben Graham and Warren Buffet, Joel tells us to invest in companies that return very high return on capital AND high profit per share.
He also sets the right expectations, by providing enough data to prove that it works (mostly), and that it works if you have patience. He also wants us to know that investing in individual stocks is not for everyone (surprise. Graham and Buffett have said the same).
After some digging, I found that Joel has his own mutual fund with holdings chosen using the Magic Formula: https://www.google.com/finance?q=MUTF...
The fund has returns 18%+ over 3-year period, beating the market.
Formula:
1. Return on Capital = EBIT / (Net working capital + net fixed asset)
2. Earning yield = EBIT / Enterprise Value
February 11, 2015
A few weeks ago I read another book from Joel Greenblatt called "the big secret for the small investor". At the time I felt disappointed by the level of simplicity but still wanted to continue to learn from the author. I understand now that back then I missed the point. The principles of value investing are meant to be that way: good businesses at bargain prices, and Joel Greenblatt masters the art of telling this story. Yet 30 holdings to rebalance on a yearly basis seems a lot. I can't help but thinking that Warren Buffet too has a point with his "20 punch card" concept. Now, just like John Mihaljevic in the Manual of ideas, I wonder if any further filtering can be added to narrow down the list of holdings a bit. Anyway overall I enjoyed this little book and particularly loved the down to earth funny stories at the beginning of each chapter. I understand now why Bruce Greenwald recommended it "It should be mandatory reading for all serious investors from 4th grade on up" link.
March 2, 2017
When people say, "that book should have been a blog post" this is what they mean.
Usually, I like the "Little Books" series but this one was no good for me. I do like Greenblatt though, I strongly suggest you read You Can Be a Stock Market Genius instead.
Usually, I like the "Little Books" series but this one was no good for me. I do like Greenblatt though, I strongly suggest you read You Can Be a Stock Market Genius instead.
April 30, 2023
Positivt: prinsippene er gode. Enkel og grei formel som bunner ut i at man skal kjøpe kvalitet til en billig penge, for så å vente til resten av tomsingene på markedet skjønner at aksjen er kvalitet. For det vil de skjønne, men det kan ta litt tid. Den er grei.
Negativt: en tredjedel uti boka var jeg lut lei av å høre de tre ordene "the magic formula". Halvveis uti boka var de tre ordene mitt personlige Vietnam, og mot slutten hadde jeg mer lyst til å hoppe utfor verandaen enn å høre de tre ordene én gang til. Jeg har ikke holdt tellinga, men min indre Lilli Bendriss sier meg at de tre ordene er nevnt ca. 4568 ganger ila. boka.
I tillegg er første del av boka litt dryg hvis man kjenner prinsippene rundt aksjehandel og markedspsykologien sånn noenlunde. Det er som å være ferdig med grunnskolen, og plutselig skal du tilbake til å høre på "Per har to epler. Så får han et eple til" osv.
Forfatter kunne også spart seg for tiraden mot kvaliteten på det amerikanske skolesystemet og hva som kan gjøres for å bedre det. Det kommer litt utav det blå, og burde vært hagesakset ut.
På ett tidspunkt begynner han også å gå litt for konkret inn på skattesatsene i USA, og bruke disse som grunnlag for handlinger i markedet. All den tid skattesatser kan endre seg like kjapt som promillenivået til Charter-Svein på cava-søndag, og i tillegg blir veldig USA-sentrert, tror jeg det er lurt å holde det utenfor en bok som skal gi generelle investeringsråd til et globalt publikum.
Negativt: en tredjedel uti boka var jeg lut lei av å høre de tre ordene "the magic formula". Halvveis uti boka var de tre ordene mitt personlige Vietnam, og mot slutten hadde jeg mer lyst til å hoppe utfor verandaen enn å høre de tre ordene én gang til. Jeg har ikke holdt tellinga, men min indre Lilli Bendriss sier meg at de tre ordene er nevnt ca. 4568 ganger ila. boka.
I tillegg er første del av boka litt dryg hvis man kjenner prinsippene rundt aksjehandel og markedspsykologien sånn noenlunde. Det er som å være ferdig med grunnskolen, og plutselig skal du tilbake til å høre på "Per har to epler. Så får han et eple til" osv.
Forfatter kunne også spart seg for tiraden mot kvaliteten på det amerikanske skolesystemet og hva som kan gjøres for å bedre det. Det kommer litt utav det blå, og burde vært hagesakset ut.
På ett tidspunkt begynner han også å gå litt for konkret inn på skattesatsene i USA, og bruke disse som grunnlag for handlinger i markedet. All den tid skattesatser kan endre seg like kjapt som promillenivået til Charter-Svein på cava-søndag, og i tillegg blir veldig USA-sentrert, tror jeg det er lurt å holde det utenfor en bok som skal gi generelle investeringsråd til et globalt publikum.
January 12, 2019
This book first explains complex financial and investing concepts in a highly approachable and relatable manner (albeit with a folksy tone that may wear on some). With that foundation, it then explains (in just a few brisk pages) the author's stock-picking methodology. That this (or any) strategy can consistently outperform the overall stock market is, of course, a highly suspect claim. But the author makes a persuasive case, by far the most persuasive I've seen in my short investing career. Reading this book itself is an excellent return on investment, as it is short but packed with knowledge, and, the more I reflect on it, the more I realize its value. I'm eager to consider its ideas for my own investment club and portfolio. Finally, I read this book because it was highly recommended during the Tim Ferriss's podcast interview of Mr. Money Mustache, and so I now want to read more books that those two internet personalities recommend.
August 19, 2022
I thought this book was okay but recommend reading Mr. Greenblatt's preeminent title (You Can be a Stock Market Genius) instead.
June 28, 2021
Pretty easy to understand which is nice since I'm only a beginner. Can be repetitive at times but the magic formula that is promoted all throughout the book seems to be worth a shot.
April 27, 2023
Reads okay, my score is based on the fact that I don't live in the US and I have not tested if the principles work in Europe and for me.
September 24, 2024
Joel Greenblatt’s The Little Book That Still Beats the Market is a book that distils the complex world of investing into a simple, digestible formula for ordinary investors like myself. Having dabbled in the stock market for a while, I’ve seen many publications offering information on strategies, but this one stands out for its clarity, practicality, and Greenblatt’s knack for making the daunting task of picking stocks seem remarkably straightforward.
At the heart of the book is Greenblatt’s “magic formula,” which promises to help even the most novice investors find good companies trading at attractive prices. The formula is based on two key principles: finding companies that are both profitable and available at a bargain. Greenblatt introduces the concepts of return on capital (how effectively a company turns investment into profit) and earnings yield (essentially the inverse of the P/E ratio, showing how much you’re paying for a company’s earnings). According to the book, by combining these two metrics, investors can create a list of stocks that are not only well-managed but also underpriced by the market.
What I appreciated most was Greenblatt’s ability to make these complex ideas accessible. Instead of bogging readers down with financial jargon, he breaks down the ideas with relatable analogies, such as likening investing to buying candy on sale. The conversational tone and humour throughout the book make it an enjoyable read, even for those of us without a background in finance. I felt like Greenblatt was speaking directly to me, reassuring me that I didn’t need an MBA or years of Wall Street experience to become a successful investor.
However, while the formula’s simplicity is appealing, it’s also one of the aspects I’m slightly sceptical about. The idea that a mechanical formula could consistently beat the market feels a bit too good to be true. Greenblatt acknowledges this, stating that the formula doesn’t work all the time and that investors need patience—sometimes, several years of it. He emphasises the importance of sticking with the strategy even during underperforming periods, but I found myself wondering if I, or many others, would have the discipline to ride out those tough years. But as the saying goes; “Time in the market beats timing the market”.
Moreover, the book simplifies a lot of the challenges that come with stock picking. While the magic formula is a great starting point, it doesn’t take into account many qualitative factors that can affect a company’s future performance, like management quality or industry trends. In reality, investing is as much an art as it is a science, and while numbers can tell you a lot, they don’t always give the full picture. That said, Greenblatt does admit that his formula is not foolproof and that no one can perfectly predict market behaviour.
One of the most refreshing aspects of the book is Greenblatt’s honesty about how difficult it can be to stick with an investment strategy, particularly when it goes through periods of underperformance. He makes it clear that beating the market isn’t easy and requires patience, discipline, and a long-term outlook. This contrasts with many other investment books that often promise quick wins or guaranteed success. Greenblatt’s candour here is something I respect, as it adds a layer of realism to his otherwise optimistic message.
Another strength of the book is how it focuses on individual responsibility in investing. Greenblatt encourages readers to take charge of their financial futures, providing a step-by-step guide on how to implement the formula and build a portfolio. For those who don’t want to do the legwork, he even suggests ways to find professional help or invest in index funds, showing he understands that not everyone has the time or interest to become a hands-on investor.
In conclusion, The Little Book That Still Beats the Market is a valuable resource for both beginners and experienced investors. It offers a simple, easy-to-understand formula that, when applied with patience and discipline, can help investors outperform the market. While it may oversimplify some aspects of investing and requires a level of commitment that not everyone will be able to muster, the book’s core principles are sound and offer a great foundation for anyone looking to take control of their financial future. If nothing else, it’s an excellent reminder that, with the right approach, investing doesn’t have to be as intimidating as it seems.
At the heart of the book is Greenblatt’s “magic formula,” which promises to help even the most novice investors find good companies trading at attractive prices. The formula is based on two key principles: finding companies that are both profitable and available at a bargain. Greenblatt introduces the concepts of return on capital (how effectively a company turns investment into profit) and earnings yield (essentially the inverse of the P/E ratio, showing how much you’re paying for a company’s earnings). According to the book, by combining these two metrics, investors can create a list of stocks that are not only well-managed but also underpriced by the market.
What I appreciated most was Greenblatt’s ability to make these complex ideas accessible. Instead of bogging readers down with financial jargon, he breaks down the ideas with relatable analogies, such as likening investing to buying candy on sale. The conversational tone and humour throughout the book make it an enjoyable read, even for those of us without a background in finance. I felt like Greenblatt was speaking directly to me, reassuring me that I didn’t need an MBA or years of Wall Street experience to become a successful investor.
However, while the formula’s simplicity is appealing, it’s also one of the aspects I’m slightly sceptical about. The idea that a mechanical formula could consistently beat the market feels a bit too good to be true. Greenblatt acknowledges this, stating that the formula doesn’t work all the time and that investors need patience—sometimes, several years of it. He emphasises the importance of sticking with the strategy even during underperforming periods, but I found myself wondering if I, or many others, would have the discipline to ride out those tough years. But as the saying goes; “Time in the market beats timing the market”.
Moreover, the book simplifies a lot of the challenges that come with stock picking. While the magic formula is a great starting point, it doesn’t take into account many qualitative factors that can affect a company’s future performance, like management quality or industry trends. In reality, investing is as much an art as it is a science, and while numbers can tell you a lot, they don’t always give the full picture. That said, Greenblatt does admit that his formula is not foolproof and that no one can perfectly predict market behaviour.
One of the most refreshing aspects of the book is Greenblatt’s honesty about how difficult it can be to stick with an investment strategy, particularly when it goes through periods of underperformance. He makes it clear that beating the market isn’t easy and requires patience, discipline, and a long-term outlook. This contrasts with many other investment books that often promise quick wins or guaranteed success. Greenblatt’s candour here is something I respect, as it adds a layer of realism to his otherwise optimistic message.
Another strength of the book is how it focuses on individual responsibility in investing. Greenblatt encourages readers to take charge of their financial futures, providing a step-by-step guide on how to implement the formula and build a portfolio. For those who don’t want to do the legwork, he even suggests ways to find professional help or invest in index funds, showing he understands that not everyone has the time or interest to become a hands-on investor.
In conclusion, The Little Book That Still Beats the Market is a valuable resource for both beginners and experienced investors. It offers a simple, easy-to-understand formula that, when applied with patience and discipline, can help investors outperform the market. While it may oversimplify some aspects of investing and requires a level of commitment that not everyone will be able to muster, the book’s core principles are sound and offer a great foundation for anyone looking to take control of their financial future. If nothing else, it’s an excellent reminder that, with the right approach, investing doesn’t have to be as intimidating as it seems.
April 13, 2020
Great book to get deeper understanding of how trading works.
July 11, 2015
Want my attention? Free books will usually do it! Picked this up at a recent trade show for investment professionals as I like to review what is available in the popular press so I can field questions and comments from clients. (Explains why I subscribe to a lot of "financial pornography" like "Money", "Kiplingers" and "Consumer Reports".) At any rate, this simplistic, repetitive and slender volume still contains some worthy ideas. The "magic formula" emphasizes investments in companies that combine low valuations as expressed by earnings yield - EBIT/Enterprise value (similar to the P/E ratio but containing debt in addition to market capitalization divided into earnings before Interest and taxes) and return on capital - EBIT/net working capital + net fixed assets. Take these two factors which equate to buying "good businesses cheaply", pick about 30 of the larger ones and go for the long haul to produce market beating returns. (They have a website that will run the numbers and rankings for you.)
Normally when an investment technique is found to be successful, many folks jump on the bandwagon and the technique rapidly loses its advantage. Why does this continue to work? Simply because it does not always work. Sometimes over shorter periods of time growth stocks will beat this value approach, other times certain segments may fall out of favor and under-perform. As has been noted, in the short term "Mr. Market" can be an idiot; in the long term he tends to get it right and that is when this approach is most powerful. So, if you are going to put it to work, approach it with discipline and patience and it should reward your efforts. But, as they say, past performance is no guarantee of future results!
While it is an entertaining and informative read, many important areas are glossed over such as taxes, asset allocation in general, the integration of investing with other financial planning issues and the development of alternate investment vehicles. But, if those were added I don't think it would be the "little book" anymore, would it?
Normally when an investment technique is found to be successful, many folks jump on the bandwagon and the technique rapidly loses its advantage. Why does this continue to work? Simply because it does not always work. Sometimes over shorter periods of time growth stocks will beat this value approach, other times certain segments may fall out of favor and under-perform. As has been noted, in the short term "Mr. Market" can be an idiot; in the long term he tends to get it right and that is when this approach is most powerful. So, if you are going to put it to work, approach it with discipline and patience and it should reward your efforts. But, as they say, past performance is no guarantee of future results!
While it is an entertaining and informative read, many important areas are glossed over such as taxes, asset allocation in general, the integration of investing with other financial planning issues and the development of alternate investment vehicles. But, if those were added I don't think it would be the "little book" anymore, would it?
January 8, 2015
Malá kniha, která (stále) poráží trh. Tak nějak by zněl český překlad 2. rozšířeného vydání knížky, která rozvířila vody hodnotového investování více než jakýkoli jiný titul posledních let. Autorem je legendární investor Joel Greenblatt, který ji podle svých slov napsal tak jednoduše, aby z ní mohly těžit (a bohatnout) i jeho děti. Text je skutečně nevídaně srozumitelný a stručný, což rozhodně není u toho druhu literatury zvykem. Důležitý je ale obsah. Grennblatt nabízí až absurdně jednoduchý „magický vzorec“ hodnotového investování sestávající z pouhých dvou screeningových veličin. Detailně popisuje celou investiční strategii a na historických datech dokazuje pozoruhodně vysoký výnos oproti tržnímu průměru. Všechno má ale svůj háček, a tím je v tomto případě nevyrovnaný výnos v čase. Minimální návratový horizont je 3 roky, optimálně však 5-10 let, a vyžaduje značnou disciplínu navzdory táhlým pádům. Tedy nic pro slabé povahy! V investorských a finančních kruzích byl ovšem Greenblattův spisek přijat velice kladně. Stal se nejen best-sellerem, ale také okamžitou klasikou, pročež došlo i na toto doplněné vydání. Přestože záběr knihy je velmi omezený, jde prakticky o povinnou četbu, ať už se rozhodnete Joelovými radami řídit či nikoliv. Přinejmenším to můžete brát jako vzrušující mentální experiment a potrápit vlastní kritické myšlení i mozkové závity. Skvělej chlápek!
July 13, 2015
You can almost judge this book from its title (and it beats “Investing for Dummies” although it meets the same goal). While author Greenblatt is a professor at a business school, it is less a primer about stock investments (although it does serves as a 101, for illiterate investors such as myself), but more to push his “Magic Formula” for investing, which is actually quite simple, backed by years of his research that shows it beats the market, and can be applied with the help of his free website. Essentially, you want to buy good companies, at low prices, which you can do if you find companies that high high return on capital, but low price to earnings ratios. Two big caveats--since the formula doesn’t always work, particularly in the short term, you need to plan to stick to the formula for the long term and buy 20-50 stocks, because it requires the rule of averages. Even if you don’t plan to use his formula (although I must say I was convinced he will make me rich, if I ever getting around to following his advice), the book is a very entertaining read (I would characterize his writing as Yiddish-style humor) written with the goal of explaining the market to a middle schooler. Also, as the book title implies, it’s a little book, so the time you need to read it won’t be so much of an, ahem, investment.
May 20, 2021
As the title hints, this one is centered around a set of simple strategies (called the “magic formula”) that helps investors beat the market. The author pulls no punches here — he readily admits the pros and cons of such a strategy and invites readers to try their hand at it, despite the fact that it doesn’t necessarily win all the time.
But, as he also suggests, the fact that the formula doesn’t beat every strategy when analyzed over all time periods is exactly what makes it so good; success with it requires patience, and some investors can’t stand to wait very long. That lack of patience prevents everyone from piling into the book’s core methodology and sending the companies it promotes to prices that no longer make sense.
It’s sometimes a bit confusing that solid investing can be so simple. But this book, and all the statistics and historical data within it, show us that simple really can lead to great results. And results are all that matters in investing — not the level of difficulty or complexity of one's approach.
Definitely check this one out if you’re looking for a new perspective.
-Brian Sachetta
Author of “Get Out of Your Head”
But, as he also suggests, the fact that the formula doesn’t beat every strategy when analyzed over all time periods is exactly what makes it so good; success with it requires patience, and some investors can’t stand to wait very long. That lack of patience prevents everyone from piling into the book’s core methodology and sending the companies it promotes to prices that no longer make sense.
It’s sometimes a bit confusing that solid investing can be so simple. But this book, and all the statistics and historical data within it, show us that simple really can lead to great results. And results are all that matters in investing — not the level of difficulty or complexity of one's approach.
Definitely check this one out if you’re looking for a new perspective.
-Brian Sachetta
Author of “Get Out of Your Head”
September 2, 2020
This book is just so damn good! It’s simple to read. Extreme laymen like me should find no difficulty in understanding the concepts of this book.
The author is really humorous as well! Seriously sounds like he’s messing around with their kids while teaching them some important things, and thereby, the book wouldn’t feel boring at any point in time. I highly appreciate the author’s funny narration, and it genuinely does seem like the book and the formula taught in the book are extremely valuable and helpful if one is willing to be patient.
Regardless, I shall still be a bit sceptic, since I haven’t gotten to apply this formula yet. Hence, I gave it one less star.
I shall most definitely try this formula out (for maybe half a decade or so), and come back to update my rating to either 5 or 0. But I’m pretty certain, in the long run this formula would work.
I’m truly thankful for this book. It has been a pleasant read, quite possibly a very important book to guide my investments throughout my life.
The author is really humorous as well! Seriously sounds like he’s messing around with their kids while teaching them some important things, and thereby, the book wouldn’t feel boring at any point in time. I highly appreciate the author’s funny narration, and it genuinely does seem like the book and the formula taught in the book are extremely valuable and helpful if one is willing to be patient.
Regardless, I shall still be a bit sceptic, since I haven’t gotten to apply this formula yet. Hence, I gave it one less star.
I shall most definitely try this formula out (for maybe half a decade or so), and come back to update my rating to either 5 or 0. But I’m pretty certain, in the long run this formula would work.
I’m truly thankful for this book. It has been a pleasant read, quite possibly a very important book to guide my investments throughout my life.
December 16, 2020
Placed a pretty good foundation for what it means to buy businesses at bargain prices. Because you always hear about it but never actually know what criteria a business has to pass to be consider good while also being undervalued thus being sold at a bargain price.
The combination of high return on capital with a high earnings yield (earnings per share) is what makes up Joel's "magic formula". Now idk if the magic formula works but he does do a good job explaining why it *should* work and how it has worked in the past. So.....fingers crossed?
The combination of high return on capital with a high earnings yield (earnings per share) is what makes up Joel's "magic formula". Now idk if the magic formula works but he does do a good job explaining why it *should* work and how it has worked in the past. So.....fingers crossed?
January 20, 2015
I read this book after reading 'the intelligent investor', and had to get used to the simplicity in which this book is told. At first I liked it, because it is almost straight forward what he is telling, but it gets kind of annoying at the second half of the book.
Too repetetive, and he's promoting his so-called 'magic formula' too much. Still a nice read if youre into investing though! Not the only book youll only need to read on investing as mentioned.
Too repetetive, and he's promoting his so-called 'magic formula' too much. Still a nice read if youre into investing though! Not the only book youll only need to read on investing as mentioned.
March 1, 2021
I liked this book. It had its moments of wit and moments where I thought it sounded a little too good to be true. Regardless, I think its principles will be useful to me moving forward. I wouldn't blindly follow the formula in this book, however I will use it for screening in the future.
September 2, 2014
Value premium
Buy low sell high
EBIT / (Net fixed assets + net op WC)
EBIT / EV
magicformulainvesting.com
Hold for 1 year
Enter every 2-3 months
20-30 diversification recommended
Buy low sell high
EBIT / (Net fixed assets + net op WC)
EBIT / EV
magicformulainvesting.com
Hold for 1 year
Enter every 2-3 months
20-30 diversification recommended
This entire review has been hidden because of spoilers.
June 1, 2024
A preliminary reading on how to pick a stock. We know that if the company is rightly valued and if the price seems to be trading at a discount, it is reasonable to buy the share at a higher margin of safety. This was well covered by Benjamin Graham in his book The Intelligent Investor. Most importantly, in order to find out if the company has future potential, there are three essential parameters one must consider: earnings yield, return on capital and competitive advantage. Usually, a high return on capital comes from a competitive advantage. This is the underlying principle behind picking “value stocks”.
While Saurav Mulherjhea called this as "Coffee Can Investing", Professor Joel Greenblatt terms it "Magic Formula". Yet, the magic formula has a few shortcomings. This doesn't work for mid or small caps. Relying on the law of averages, unless you choose around 30 large cap stocks based on their ranking relative to the above parameters, you wouldn't be able to beat the market. Even if you consider buying thirty large cap stocks, each stock in the mentioned range bound would be trading at a higher price (most of the shares in Nifty are priced above Rs. 1000 per piece). Unless one wants to wait for a catastrophic market crash, and invest in a downturn, the best way to mimic, if not beat the market, is to invest in low-cost index Funds or ETFs.
Valuing a business is a skill, and it takes time to get hold of the nuances and dynamics of the market and economics. Understanding financial statements is a skill that develops over a period of time through consistent reading. That's why the author rightly notes, “Choosing individual stocks without any idea of what you're looking for is like running through a dynamite factory with a burning match. You may live, but you're still an idiot”.
While Saurav Mulherjhea called this as "Coffee Can Investing", Professor Joel Greenblatt terms it "Magic Formula". Yet, the magic formula has a few shortcomings. This doesn't work for mid or small caps. Relying on the law of averages, unless you choose around 30 large cap stocks based on their ranking relative to the above parameters, you wouldn't be able to beat the market. Even if you consider buying thirty large cap stocks, each stock in the mentioned range bound would be trading at a higher price (most of the shares in Nifty are priced above Rs. 1000 per piece). Unless one wants to wait for a catastrophic market crash, and invest in a downturn, the best way to mimic, if not beat the market, is to invest in low-cost index Funds or ETFs.
Valuing a business is a skill, and it takes time to get hold of the nuances and dynamics of the market and economics. Understanding financial statements is a skill that develops over a period of time through consistent reading. That's why the author rightly notes, “Choosing individual stocks without any idea of what you're looking for is like running through a dynamite factory with a burning match. You may live, but you're still an idiot”.
January 17, 2021
Jawel: ik ben belegger geworden. En aangezien ik nog geen 1 dag ooit economieles heb gehad, was dit boek wel nodig. Ik vind z’n theorie top, maar de manier van opschrijven helemaal niks. Het hoofddeel van zijn boek schrijft hij voor beleg-noobs. Deels handig, maar uiteindelijk eindigt het met dat je hersenloos zijn site moet gebruiken voor zijn “magische formule”. Vervolgens is er een stukje voor mensen die er meer vanaf weten. Maar dat is dan weer juist zo erg niet-uitgelegd dat ik daar ook niks mee kon. Had liever gezien dat hij dat laatste stuk zou uitleggen voor alle beleg-noobs die minstens één hersencel bezitten.
June 8, 2022
I can see where some may say that this is an oversimplification of analysis but the author clearly demonstrates that the ‘Magic Formula’ does not always work and if it did, it would not be as successful.
I think my main takeaways are:
1) this is a very fun, easy to follow book to have on your shelf and serve as a introduction to equities for one’s children.
2) do not blindly rely on the formula for success but perhaps look at it as an additional screen or checklist when analysing equities.
Fantastic read and highly recommended for all levels of investor experience!
I think my main takeaways are:
1) this is a very fun, easy to follow book to have on your shelf and serve as a introduction to equities for one’s children.
2) do not blindly rely on the formula for success but perhaps look at it as an additional screen or checklist when analysing equities.
Fantastic read and highly recommended for all levels of investor experience!
November 21, 2022
"Bol qazanclı şirkətlərin səhmlərini ən ucuz qiymətə alın və uzun müddət saxlayın." Yəqin ki, bu kitabı bu cümləylə izah edə bilərəm. Desəm bəlkə inanmazsınız amma kitabdakı əsas fikir də elə sadəcə bu cümlədən ibarətdir :) Mənə çox maraqlı gəlir ki, çox rahatlıqla bloq yazısı ola biləcək kitablar, necə olur ki, kitab kimi çap olunur və hətta bestseller olurlar. Amma haqqını yemiyim, kitabın appendiks hissəsində yazıçı öz sehrli düsturunun iqtisadi olaraq necə hesablandığını açıqlamaq zəhmətinə girir heç olmasa :)
September 4, 2020
This is a simple book almost to the point of being useless. But being that simple really emphasis the facts of what is really important when it comes to investing in stocks. In doing this I believe it does a great job at its goal. Which is an introduction to Value Investing and a reminder of the basics of evaluating a business. I also like the idea of the magic formula for the purpose of eliminating the human emotion from the equation which I believe to be the biggest crutch in investing.
Overall a solid read but nothing new if you have already read lots from other value investors.
Overall a solid read but nothing new if you have already read lots from other value investors.
July 27, 2021
2.5
If you are completely new to the stock market world, this might provide some basic concepts. Good rationale and disclaimers given for the so called “magic formula”.
However the examples provided to explain some these concepts are over simplified. And there is this childish tone that runs throughout the book which is really irritating.
It’s a quick ‘skim through’ resource if you are new to the investing world.
If you are completely new to the stock market world, this might provide some basic concepts. Good rationale and disclaimers given for the so called “magic formula”.
However the examples provided to explain some these concepts are over simplified. And there is this childish tone that runs throughout the book which is really irritating.
It’s a quick ‘skim through’ resource if you are new to the investing world.
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