Customer Reviews for

The Little Book That Beats the Market

Average Rating 3.5
( 22 )
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  • Posted September 30, 2009

    Author says: Model back-tested 17 yrs @ 30% compounded return!!!

    Joel Greenblatt does a good job at expressing the clear advantages towards practicing a fundamental based investment strategy. He cites his own investment record as well as ques some of the famous value investors of the past century to further his claim. Perhaps the most simple method of persuassion used is a formula he created by focusing on companies with high returns and selling at a large discount. Greenblatt focus turns to Benjamin Graham's "Mr. Market" to help readers understand the manic depressive mood swings which allows the market to price securities far above or below the companies underlying intrinsic value. Greenblatt uses the idea of a hypothetical company his son sets up with a friend called Jason's Gum Shops to illustrate several aspects of business and company evaluation, such as earnings yield -- the inverse of the P/E ratio -- and return on invested capital. Lastly, Greenblatt suggest that his magic formula does not beat the market every year but on average after 3 yrs or more of using his system. It uses a hedge by asking the novice to purchase 20-30 companies from the results of his formula and upon holding them for one-year, replace the then current companies with those that rank highest on the current magic formula list. Continue to cycle these companies going forward and voila= "Magic Formula Investing!" It is essentially an index approach using some of the best companies yielding very good earnings. At the very least a solid case for finding a great core of companies to begin ones own research for value based securities. A quick read, if you wish to further validate his record I would critique his long-term record attached to Gotham Capital.

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  • Anonymous

    Posted February 8, 2008

    Useful for Beginners and Experts

    The Little Book is a short, concise, easy to understand book that sums up the concept of value investing. To beginners, it offers a simple formula for market smashing performance. For experts, it offers a new way of screening for potential investments. With the Magic Formula screen and some additional research (like at MagicDiligence web site), some of the market's best opportunities can be found.

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  • Anonymous

    Posted May 15, 2006

    Value investing for beginners ¿ with a hint of magic

    Whether or not this book's 'magic formula' delivers the results that author Joel Greenblatt promises, the book itself presents a lucid, simple explanation of investing in the stock market. Unlike many who write about investing in stocks and offer formulas for success, Greenblatt is remarkably honest in his discussion of the difficulty of beating the market and remarkably modest in his claims (although perhaps not quite as restrained in referring to his Web site). We find that the chief merit of this bestseller is not its formula for success (which derives from guru Benjamin Graham's value approach), but rather its clear, step-by-step introduction to the fundamentals of investing for novices. The author makes the market understandable to a child. That is quite an achievement.

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  • Anonymous

    Posted April 15, 2006

    Greatest book on investing since The Intelligent Investor

    Whether you are just getting started or have an MBA this book will help you understand the principles of value investing. The book provides a simple formula to help you find value stocks. Although the formula is easy to understand and use it is not apparent how Mr. Greenblatt is applying it on his Website magicformulainvesting. If you try to use his suggested formula and then compare them to the the results on his site you will most likely get different values. I believe this is because Greenblatt wanted to keep the book simple. However, if you would like to see what I believe is the exact formula visit my tutorial at my website equity-analyst. The tutorial also makes adjustments for normalized earnings which is something that can't be ignored. Even with this minor discrepency this is one of the greatest books on investing to come about in the last 60 years.

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  • Anonymous

    Posted January 17, 2006

    Results are verfiable - 'Boston Quant is wrong!'

    Despite calling himself 'The Boston Quant', I would like to point out that 'The Boston Quant's' review was wrong and it is clear that he did not read the book. If he would have, he would know that EV (Enterprise Value) is the market capitalization + debt + preferred - EXCESS CASH. (Actually, as a quant researcher, it is difficult for me to believe he would not know the correct definition of EV even before reading the book. It's kind of like being a Nascar driver and not knowing how to change gears.) Greenblatt gives us a clear definition of all the measures he used in the book. The EV he used was the one I described prior. When it comes to the EBIT, he uses the trailing twelve month EBIT and for Invested Capital, he uses Net Working Capital (= Current Assets ¿ Cash and Short-term Securities ¿ (Current Liabilities ¿ Interest Bearing Liabilities)) + Net Fixed Assets. If I use the same example (1/17/06), Callwave (CALL), in the way Greenblatt described in the book, then I get an EV of $36.40 Million (= $97.90 (MrktCap) + $0 (Debt) ¿ $61.5 (Cash)) and a trailing 12 month EBIT of $6.99 Million. That gives me a EBIT/EV earnings yield of 19.20% and which is close to the same percentage as shown on the Magic Formula website. Don¿t be discouraged by ¿Boston Quant¿s¿ review. Greenblatt¿s book is great.

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  • Anonymous

    Posted December 18, 2005

    The magic formula works!

    I've used Greenblatt's formula to select the smallest stocks that fit his criteria, and my portfolio is roaring up.

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  • Anonymous

    Posted November 9, 2005

    Size doesn't matter

    I love little books that guide our lives to successful living. Like short proverbs, they are packed with wisdom

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  • Anonymous

    Posted January 17, 2011

    No text was provided for this review.

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