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The Little Book That Beats the Market (精装)
by Joel Greenblatt
| Category:
Investing, Investment guide |
| Market price: ¥ 218.00
MSL price:
¥ 178.00
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| Stock:
In Stock |
MSL rating:
 Good for Gifts |
| MSL Pointer Review:
A Wharton-trained head of a successful investment firm has a foolproof method for evaluating stocks: Companies are worth what they return to investors on a consistent basis. |
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AllReviews |
1 2   | Total 2 pages 14 items |
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Wall Street Journal (MSL quote), USA
<2007-01-16 00:00>
...a sharply written, anecdote-rich, easy to understand investing strategy. |
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SmartMoney (MSL quote), USA
<2007-01-16 00:00>
...a rare worthy edition to humanity's investing know-how. |
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Financial Times (MSL quote), USA
<2007-01-16 00:00>
There's certainly no dearth of advice on investment. The best-seller lists are full of books on how to be a successful investor "in only 15 minutes a week", on how to become an "automatic" millionaire, and about how to invest if you're "young, fabulous and broke".
The best book on the subject in years is value investor Joel Greenblatt's The Little Book That Beats the Market, which is still a top seller months after its release. Beyond the credibility that comes from someone whose private investment partnership, Gotham Capital, has produced 40 per cent a year returns over the past 20 years, Mr Greenblatt brings an elegant and simple writing style to what can be a complicated subject.
He outlines a "magic formula", based on how he invests, that anyone can use. The formula has only two inputs, a company's earnings yield and its return on capital. The rationale is straightforward: buy shares in good businesses, measured by returns on capital, only when they're available at bargain prices, defined as a high earnings yield.
The magic formula looks for companies that have the best combination of earnings yield and return on capital, with each input weighed equally. An outstanding company with an expensive stock ranked, say, first for return on capital but 1,999th on earnings yield, would have the same combined ranking of 2,000 as a low return on capital company within expensively priced shares, ranking 1,999th in return on capital but first on earnings yield.
Using this approach to create a regularly updated portfolio of about 30 stocks with the highest combined rankings, Mr Greenblatt tested his formula between 1988 and 2004. The results were remarkable: with only one down year, the magic portfolio would have returned 30.8 per cent a year, against a 12.4 percent annual return for the S&P 500.
Rather than using the latest 12 months' earnings to calculate earnings yield and return on capital, Mr Greenblatt and his analysts try to improve on the rote application of this formula by using earnings estimates in a "normal" year, one in which nothing unusual is happening within the company, its industry or the overall economy.
Mr Greenblatt has created a free website for screening stocks based on his approach (www.magicformulainvesting.com). In a recent screen I carried out on the site of the top 100 magic formula companies with market capitalizations above Dollars 2bn, the top 10companies ranked by market cap were Exxon Mobil (XOM), Microsoft (MSFT), Pfizer (PFE), Johnson & Johnson (JNJ), IBM (IBM), Intel (INTC), Conoco Phillips (COP), Dell (DELL), 3M (MMM) and Motorola (MOT). Now that's an impressive group of companies.
I own one of them(Microsoft) in my portfolio. Given how sceptical I am about the tech sector, owning this is a real leap for me but this is a fantastic business and the stock is attractively priced. Microsoft has a dominant franchise, some of the most jaw-dropping economic characteristics ever achieved, capable, honest, shareholder-friendly management, and unlike most technology companies, reasonably predictable future prospects.
I am optimistic about Microsoft's future prospects for a number of reasons. The company will be releasing in the next year significant upgrades of its two cash cows, Windows and Office. Historically, these events have been big and highly profitable events for Microsoft.
Yes, Microsoft's days of ultra-high growth are over, inevitable for a company with Dollars 40bn in annual revenues. But it is highly likely the company will grow substantially faster than the S&P 500 for many years to come and that its fabulous economic characteristics will remain largely intact.
At a recent price of Dollars 27, Microsoft, after adjusting for the company's cash hoard, is trading at under 17 times earnings estimates for this calendar year.
I don't claim this is screaming cheap but it is close to the lowest p/e multiple the stock has ever traded at and is, I believe, an attractive price for a company of its quality and bright future.
You might wonder if Mr Greenblatt is concerned that popularising his strategy will mean it will stop working. "Traditional value investing strategies have worked for years and years and everyone's known about them," he says. "They continue to work because it is hard for people to do, for two main reasons. First, the companies that show up on the screens can be scary and not doing so well, so people find them difficult to buy.
Second, there can be one-, two- or three-year periods when a strategy such as this doesn't work. Most people aren't capable of sticking it out through that." - Whitney Tilson is a money manager who co-edits Value Investor Insight and co-founded the Value Investing Congress |
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The Washington Post (MSL quote), USA
<2007-01-16 00:00>
Hedge fund manager and Columbia University business school professor Joel Greenblatt has written a delightful volume called The Little Book that Beats the Market (Wiley) that anyone who takes his personal investing seriously should read. Greenblatt starts his slim volume with an uncommonly elegant explanation - written for his children - of how to value stocks. He argues that any investor can achieve higher-than-average returns by investing solely in companies with a high earnings yield and high return on equity. The book's biggest flaw is Greenblatt's use of cute, over-hyped language. He calls his approach to stock picking a "magic formula" and acts certain his strategy will continue to beat the market even now that everybody knows about it. |
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Professor Bruce Greenwald (Columbia Business School)(MSL quote), USA
<2007-01-16 00:00>
This book is the finest simple distillation of modern value investing principles ever written. It should be mandatory reading for all serious investors from 4th grade on up. |
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Michael Steinhardt (The Dean of Wall Street Hedge Fund Managers) (MSL quote), USA
<2007-01-16 00:00>
A landmark book - a stunningly simple and low risk way to significantly beat the market! |
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Michael F. Price, MFP Investors, LLC (MSL quote), USA
<2007-01-16 00:00>
Simply Perfect. One of the most important investment books of the last 50 years! |
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A reader (MSL quote), USA
<2007-01-16 00:00>
This book was quick and pleasant to read. The track record of his investment strategy is certainly impressive. However, in order to follow his plan, you would need to divest yourself of any holdings which did not meet his qualifications, and be prepared to follow the strategy for a minimum of five years. We read this in my Investment Club, and did not choose to employ his plan. If you keep investing in the stock market, odds are good that you will make money over time, but there is still no "sure thing!"
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Andrew Szabo (MSL quote), USA
<2007-01-16 00:00>
Joel Greenblatt's Little Book That Beats the Market (John Wiley), offers what the author says is a "magic formula" for success in the stock market. Such a phrase may arouse your skepticism, as it did mine, but let's look into the claim.
Joel Greenblatt founded and is a managing partner of Gotham Capital, a hedge fund that, according to reports, achieved a 50% annualized return [before payment of an incentive allocation] during the ten years (1985-1995) that it was open to outside investors. This kind of record certainly merits attention. Greenblatt, it's safe to say, has gotten rich.
Greenblatt's formula is based on only two measures: earnings yield and return on capital. These numbers are not hard to obtain. Greenblatt defines earnings yield as EBIT (earnings before interest and taxes) divided by enterprise value. Enterprise value equals a company's stock market capitalization plus debt plus preferred shares minus cash and cash equivalents on the balance sheet. Return on capital he defines as EBIT divided by the sum of net fixed assets (total assets minus depreciation to date) plus net working capital (current assets minus current liabilities).
One weakness of Greenblatt's presentation is the use of earnings as a measure. I prefer to look at a company's free cash flow (after subtraction of capital expenditures) rather than EBIT. Earnings are susceptible to a greater degree of manipulation than cash flow.
Second, the book does little to elucidate the qualitative measures that go into Greenblatt's investment process. Which businesses have a sustainable advantage? How do you identify growth? On the other hand, Greenblatt lays out a testable hypothesis--a real merit.
If you are interested in pursuing Greenblatt's idea's further, I recommend you visit his Website on MagicFormulaInvesting. At that site, you define a minimum capitalization size and a target number of stocks for your portfolio. The magic formula spits out a suggested investment set. A good number of the selections at present are in the areas of pharmaceuticals and technology.
Greenblatt presents some impressive numbers illustrating the back-tested historical results of his approach. These are, as the saying goes, no guarantee of future performance. The more money that follows Greenblatt's approach, the less it will return, over time. However, since Greenblatt's approach has a rational basis, you might also see a more rational allocation of capital to investments, which could reduce their volatility. By the same token, one rarely sees bargains anymore of the sort that Benjamin Graham outlined in Security Analysis (1st ed., 1934) - whereby companies could be bought for less than their net current assets - and the market is better for it. In that sense, financial theory is right in predicating that there is no "money machine" that markets - that is to say, competing investors - will not seek to arbitrage away. |
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Shannon Gaw (MSL quote), USA
<2007-01-16 00:00>
The Little Book That Beats the Market is a quick, enjoyable read. It provides a good introduction to value investing and is much easier to grasp than philosophies of Graham, Fisher, and Buffett. Consequently, it may be a bit too dumbed-down for some, but he plainly states who his audience is in the intro and book dustcover. If you have read The Intelligent Investor or Greenblatt's earlier book, you might want to just read the last 25 pages and you'll get all the real content. He appears to have done the research to prove his strategy works for both large and small cap stocks independent of biases usually attributed to proofs of such theories.
Greenblatt uses his own version of the earnings yield and return on capital formulas, and excludes financial, utility, and ADR equity. This makes applying the screen to stock research websites difficult, but fortunately the author has brought up his own customized (if rather Spartan) website.
I wish there had been a little more meat, but overall it was worth my time and money. |
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1 2 | Total 2 pages 14 items |
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