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The Little Book That Beats the Market [Audiobook, CD] [Audio CD]

Joel Greenblatt , Adam Grupper
3.5 out of 5 stars  See all reviews (16 customer reviews)

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Book Description

21 May 2007
An Amazon and Wall Street sensation before publication, this amazing little audiobook of profound money-making wisdom asks: Who can't spare three 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 listeners how to achieve investment returns that beat the pants off even the best investment professionals and the top academics. In fact, they can learn how it's possible to more than double the annual returns of the stock market averages. But there's more. They can do it all by themselves. They can do it with low risk. They can do it without making any predictions, and they can do it by following, step by step, a 'magic formula' that uses only common sense and two simple concepts. Best of all, once they are convinced that it really works, they can choose to do it for the rest of their life. 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, listeners can achieve extraordinary long-term investment results with a very low level of risk.

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Product details

  • Audio CD
  • Publisher: Simon & Schuster Audio; Unabridged edition (21 May 2007)
  • Language: English
  • ISBN-10: 0743555856
  • ISBN-13: 978-0743555852
  • Product Dimensions: 14.6 x 13.5 x 2.7 cm
  • Average Customer Review: 3.5 out of 5 stars  See all reviews (16 customer reviews)
  • Amazon Bestsellers Rank: 1,376,335 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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Review

"...a sharply written, anecdote–rich, easy to understand investing strategy". ( Wall Street Journal , August 7, 2006) "...a rare worthy edition to humanity′s investing know–how". ( SmartMoney , May 5, 2006) 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. ( Financial Times , April 24, 2006) "...an entertaining two–hour read" ( Daily Telegraph , April 2006) "...the book unquestionably makes good on its promises." ( SmartMoney , March 2006) Joel Greenblatt′s The Little Book That Beats the Market is pitched not to the swells of Wall Street but to the novice individual investor. Greenblatt, the founder of hedge fund firm Gotham Capital, has taken what he has learned about investing and written this skinny, pocket–size book. His goal: to explain how to make money in terms that even his five kids could understand. "I figured if I could teach them how to make money for themselves, then I would be giving them a great gift." Greenblatt, a Columbia Business School professor and an investor for 25 years, says, "I believe I can teach you (and each of my children) to be one of them" — meaning, a successful investor. The Little Book That Beats the Market is simple and sincere; Andrew Tobias, author of The Only Investment Guide You′ll Ever Need , writes the introduction. The formula works if you have faith and are patient enough to follow his guidance — over time, Greenblatt says. Greenblatt′s formula is based on Warren Buffett′s investment principles: Invest in good companies when they are cheap. According to Greenblatt, his formula historically has beaten the market for nearly two decades. Although he does not name the stocks, he claims that from 1988 through 2004, the high–return/low–price stocks of 30 of the largest 2,500 companies had returns of 22.9% annually. Simple enough. But how do you find these stocks? "The truth is you don′t need an MBA to beat the market," he writes. But there′s no fairy godmother on Wall Street. "If your stockbroker is like the vast majority, he or she has no idea how to help you! They don′t get paid to make you money. The plain fact is you are on your own." That said, you have no business investing in individual stocks on your own, he says. His magic formula promise: "If you just stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield), you can achieve investment returns that beat the pants off even the best investment professionals." He has a free (for now) website, www.magicformulainvesting.com, which screens companies using his criteria. He advises individual investors to buy a basket of 20 or 30 top stocks over the course of a year and turn them over on a strict schedule, depending on how they perform. He does not mention a minimum amount to invest. Be forewarned, though. The formula may or may not work over "shorter" periods, which can often mean years, not days or months. Good things come to those who wait and, in this case, Greenblatt means that it takes three, four or even five years to show its stuff. After a year or two of performing worse than the market averages, most people won′t stick with it. But you′ve got to "really believe in it deep down in your bones." Even if you don′t drink the Kool–Aid, you will learn about the technique of value investing from a pro. Greenblatt boils investment jargon down to what you need to know as succinctly and humorously as possible. Along the way — and it won′t take you more than two hours tops — you′re given a tutorial on bonds, stock shares and prices, earnings yields, return on capital and more. The appendix, which is "not required reading," adds a more detailed, strategic commentary. It might be hard for less–schooled investors to understand why the "magic" formula makes sense and to stay with it when things get bleak, but the hard part is just getting started, he counsels. That′s true for investing, period. ( USA Today , January 16, 2006) “Greenblatt delivers admirably…it contains one of the clearest, most entertaining explanations you’ll ever see of the ideas underlying value investing.” ( International Herald Tribune , 16 th January 2006) 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. ( The Washington Post , December 25, 2005) “a marvellously clear explanation of the value investing approach” ( Financial Times (also on FinancialNetnews.com ) 10th December 2005) “The book is certainly written simply and the concepts are conveyed compelling” ( Daily Telegraph , 29 th November 2005) Contrary to efficient–market naysayers, this engaging investment primer contends that ordinary stock–market investors can indeed get better–t...

"...a sharply written, anecdote–rich, easy to understand investing strategy". ( Wall Street Journal , August 7, 2006) "...a rare worthy edition to humanity′s investing know–how". ( SmartMoney , May 5, 2006) [ THE LITTLE BOOK is the] "best book on the subject in years." ( Financial Times , April 24, 2006) "...the book unquestionably makes good on its promises." ( SmartMoney , March 2006) "Greenblatt boils investment jargon down to what you need to know as succinctly and humorously as possible". ( USA Today , January 16, 2006) “Greenblatt delivers admirably…it contains one of the clearest, most entertaining explanations you’ll ever see of the ideas underlying value investing.” ( International Herald Tribune , 16 th January 2006) “a marvellously clear explanation of the value investing approach” ( Financial Times (also on FinancialNetnews.com ) 10th December 2005) “The book is certainly written simply and the concepts are conveyed compelling” ( Daily Telegraph , 29 th November 2005) "...engaging investment primer." ( Publishers Weekly , November 14, 2005) "The Little Book is one of the best, clearest guides to value investing out there." ( The Wall Street Journal , November 9, 2005) "...an entertaining two–hour read" ( Daily Telegraph , April 2006) "...the best book on the subject in years." ( Financial Times , May 2006) "Mr Greenblatt′s system is elegant, simple and, on the face of it, very successful." ( Investors Chronicle , May 2006) "…worth a look." ( The Business Supplement , September 2006) --This text refers to an out of print or unavailable edition of this title.

Review

"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." ––Professor Bruce Greenwald of Columbia Business School, Director of the Heilbrunn Center for Graham and Dodd Investing "A landmark book– a stunningly simple and low risk way to significantly beat the market!" ––Michael Steinhardt, The Dean of Wall Street Hedge Fund Managers "Simply Perfect. One of the most important investment books of the last 50 years!" ––Michael F. Price, MFP Investors, LLC and called "Wall Street’s Foremost Value Investor," by Fortune Magazine --This text refers to an out of print or unavailable edition of this title.

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Customer Reviews

Most Helpful Customer Reviews
169 of 172 people found the following review helpful
3.0 out of 5 stars A New Way to Buy Low and Sell Annually 12 Jan 2006
By Donald Mitchell HALL OF FAME TOP 500 REVIEWER VINE VOICE
Format:Hardcover
Ever since computer databases have become more available and computing time and memory have been cheap, anyone can take investment history and devise a "back-tested" solution that would have made you a fortune.
I don't recall any version of such a scheme that ever held up for long when it was then used to make investments going forward. Why? Conditions change.
Mr. Greenblatt's approach uses a 17 year history during one of the strongest bull markets in American investing history to come up with his approach. Will this approach work during a flat or declining market? Who knows?
Mr. Greenblatt argues (unpersuasively to my mind) that his approach will continue to work because the method fails to work very consistently over periods of less than three years. That will discourage anyone from using it for very long.
The approach is summarized on pages 134 and 135. Basically, you go to his Web site and use the data there to pick companies with a low price relative to buy 20-30 stocks over the next year (a few every 3 months). You sell each one a day or so after a year has passed (to get capital gains treatment), and replace it with another stock. You pick a minimum size market cap (he suggests at least $50 million), and you select from among the stocks for companies which traded at the lowest multiple of EBIT (earnings before interest and taxes) which had the highest ration of EBIT to the sum of net working capital plus net fixed assets in the prior 12 months. The Web site does this for you now for free.
Here is another practical problem with the book. You need to have quite a lot of money to start with or trading fees will eat up your capital. Let's say you have $10,000 to start. You will be making 60 trades a year to buy and sell 30 stocks.
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3 of 3 people found the following review helpful
5.0 out of 5 stars Very Good Investing Book 15 Nov 2009
Format:Hardcover
I am a great fan of Joel Greenblatt. This book is very simple to understand and for some more advanced investors, it may be too simple. But, I personally like simplicity because I think that people tend to complicate things too much. In investing, no one really needs to run complicated forecasts and models to see whether a stock is trading at a good price. If you need complicated calculations to convince yourself that something is a good deal, then it probably is not. If most of the mutual fund managers followed Mr. Greenblatt's value investing philosophy, they would do much better than average. Mr. Greenblatt did an excellent job simplifying a somewhat complicated subject of investing.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market
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1 of 1 people found the following review helpful
1.0 out of 5 stars Poor book 25 Dec 2012
Format:Hardcover
Lost interest very fast with this book, doesn't get to the point quick and could be condensed into about 20 pages. Would recommend Jim Slaters "Zulu Principle" it's miles better.
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5 of 6 people found the following review helpful
By pg33
Format:Hardcover
The Little Book that Beats the Market was quite an unexpected read, to say the least. On one hand I can see the benefits of its humorous, simple, story-telling style for those who are new to investing, financial markets, company reports etc. On the other hand, for somewhat more sophisticated and experienced investors, Greenblatt's writing style may be a bit off-putting and misplaced, so understand that the chief purpose of the book is to make a complex matter simple and enjoyable for laymen. However, no matter how experienced an investor you are, you would be well advised to look closely at Greenblatt's proposed strategy, which is not just simple but also very sound. (Simplicity in this case is a true bonus. A simple strategy that works is superior than a complex one, in my book.)

I have been a value investor for a few years now and do my own stock picking (US markets), so while I'm about to build a separate portfolio based on Greenblatt's method, I will still analyse each of the top 50 or so stocks, boiling it down to the best 20-odd. The major difference compared to my past/current strategy is that Greenblatt proposes selling & replacing the stocks annually. While it is true that investors need to take into account commissions (and tax) in this case, commissions (using low cost online brokers) should not amount to more than 1-2% p.a. on a decent size investment, and that is well within acceptable cost limits, in my opinion.

Even if you are not planning to use Greenblatt's method (or indeed any value investing strategy), you will still benefit from reading this short book, and learn a thing or two about the markets, which can only be a good thing.
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4 of 5 people found the following review helpful
5.0 out of 5 stars good stocks cheaply 7 Jun 2010
By Adam Smith VINE VOICE
Format:Hardcover|Verified Purchase
I loved this book. Using a simple screening technique, you can isolate those stocks making good returns on assets, and sort into which are cheap and which expensive. then set up a portfolio, suitably diversified, of the top 30 or 40. this does work, over the past year or so, this has yielded good returns for me personally. It has highlighted a number which were taken over and yielded good profits, and several others had excellent growth in price greater than the market, Not all will be winners, and that's why investing in a number of stocks is recommended. great approach, lovely book, quickly understood, can be applied via a number of websites or via Sharescope in the uk- you need software or some other means to get at the fundamental data.
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Most Recent Customer Reviews
3.0 out of 5 stars Simple Reading - Simple Idea
It is fun and easy to read. It boils down to one statement "buy profitable and well managed companies (high Return on Capital) at bargain prices (high Earnings... Read more
Published 28 days ago by Hugo Varandas
1.0 out of 5 stars huge mistake
never seen such a horrible book! a fraud! i suppose the author live by selling his books that are completely pointless!
save your time and money!
Published 1 month ago by Fabio apolloni
5.0 out of 5 stars A simple "must be read"
So simple, so practical, ...but don't think that because it looks easy its actually easy to do in practice! Requires real discipline, but will provide the rewards.
Published 3 months ago by peter ferguson
1.0 out of 5 stars Warning: USA only
Generally good advice.
However to follow the formula you need to be dealing in USA.
He has worked out a sound formula using USA accountancy practices. Read more
Published on 22 Jan 2012 by Lenny
3.0 out of 5 stars Good enough
Some time equations are the worst way to understand some things. Therefore, I think this is a good book because it explains things simply as a good business, great profit with a... Read more
Published on 28 Aug 2011 by manauj
5.0 out of 5 stars The little book that helps
This book is well written and easy to read and is ideal for somebody is just started out selecting stocks or a good reminder or for the more experienced.
Published on 7 April 2011 by Roger
2.0 out of 5 stars Good but we're in the UK
A very logically presented book and the underlying principles stand up to logic.

BUT, the only track record presented to support the 'magic formula' in based on the US... Read more
Published on 6 July 2007 by Wight Reader
5.0 out of 5 stars Very Good
While it might be odd that most of this book is concerned with justifying the investing model (the 'Magic Formula') than actually applying it, it makes a lot of sense. Read more
Published on 25 Oct 2006 by Martin Anderson
5.0 out of 5 stars Worth it's Weight in Gold
Excellent. Mr Greenblatt certainly know's how to invest with exceptional returns over the long term. This book is a simplified version of what Mr. Read more
Published on 27 April 2006 by N. Moran
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