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The Little Book That Beats the Market (Hardcover)
by Joel Greenblatt
| Category:
Investing, Investment guide |
| Market price: ¥ 218.00
MSL price:
¥ 178.00
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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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Author: Joel Greenblatt
Publisher: Wiley
Pub. in: November, 2005
ISBN: 0471733067
Pages: 176
Measurements: 7.3 x 5.2 x 0.7 inches
Origin of product: USA
Order code: BA00631
Other information: ISBN-13: 978-0471733065
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Rate this product:
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- Awards & Credential -
BusinessWeek Bestseller. The book ranks #225 in books out of millions on Amazon.com as of January 16, 2007. |
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- MSL Picks -
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.
In The Little Book, Joel Greenblatt, Founder and Managing Partner at Gotham Capital (with average annualized returns of 40 % for over 20 years), does more than simply set out the basic principles for successful stock market investing. He 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 breakthrough in the academic and professional world, Greenblatt explains it using 6th grade math, plain language and humor. You'll learn how to use this low risk method to beat the market and professional managers by a wide margin. You'll 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.
****
This work provides an excellent introduction to the stock market and investing for those who need it. It should help you feel comfortable with the concepts and point you in the direction you should go. Given the introductory level of the book I think it will also encourage you to pick up additional investing resources. However, I think it also provides a fantastic approach to investing that sophisticated investors can incorporate as well.
Greenblatt outlines two factors that he believes are the best indicators of future success: Earnings Yield and Return on Equity (he modifies the normal calculations slightly). He makes an excellent argument that these two factors should be foremost in an investors mind and shows how a relative ranking of stocks according to these measures will ensure that there are always stocks that qualify, regardless of the overall market cycle.
If you are a beginner, you can use his website to find his recommended stocks and start investing. If you're more advanced I recommend you use his two-factor approach either as an initial screen or as an additional decision factor on stocks you are evaluating. When presented with two attractive strock picks I'd go with the one that offers a higher earnings yield and a higher return on equity.
(From quoting Publisher and an Canadian reviewer)
Target readers:
Investors, beginner value investors, and people interested in value investing.
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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.
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From Publisher
Can you spare two hours to learn how to beat the market?
As unlikely as it may seem, hedge fund manager and professor, Joel Greenblatt, whose investment firm has averaged 40% annual returns for over twenty years, can teach you how. You can achieve investment returns that beat the pants off even the best investment professionals and the top academics. In fact, you can learn how it's possible to more than double the annual returns of the stock market averages.
But there's more. You can do it all by yourself. You can do it with low risk. You can do it without making any predictions, and you can do it by following, step by step, a "magic formula" that uses only common sense and two simple concepts. Best of all, once you are convinced that it really works you can choose to do it for the rest of your life.
In The Little Book That Beats the Market, Greenblatt shows how successful investing can be made easy for investors of any age. Through entertaining anecdotes and practical pearls of wisdom, the book explores the basic principles of successful stock market investing and then reveals a "magic formula" that makes buying good companies at bargain prices automatic.
The formula has been tested over hundreds of different periods and thousands of stock picks and has been proven extremely profitable for those who are willing to "stick with it." Greenblatt guides you down the path of investment success and explains why his approach will continue to work - even after everyone "knows" it.
It's never too early or too late to start investing, and by following the simple steps and magic formula that are clearly outlined and explained, you can achieve extraordinary long-term investment results with a very low level of risk. With The Little Book That Beats the Market as your guide, you'll know exactly where to go and what to do - and it won't even take much time, just a little effort every few months.
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| View all 14 comments |
Wall Street Journal (MSL quote), USA
<2007-01-16 00:00>
...a sharply written, anecdote-rich, easy to understand investing strategy. |
SmartMoney (MSL quote), USA
<2007-01-16 00:00>
...a rare worthy edition to humanity's investing know-how. |
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 |
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. |
View all 14 comments |
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