The Little Book That Still Beats the Market (Little Books. Big Profits)

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I first read this six years ago and I've re-read it roughly one a year since. In my view this is an investment classic. His target audience is his teenage children, and he's a wickedly funny writer - so the book is an easy read. For a technical book, that's quite an achievement.He starts out by explaining the basics of safe investing - banks accounts and government bonds. Then he moves into riskier investing in businesses via the stock market. He gives a great explanation of how a business works, via the fictional "Jason's Gum Shops" and "Just Broccoli". While doing that, he explains what the key fundamental data means e.g. sales, cost of sales, earnings, income. We're eased into the technicalities by reading the story.Ben Graham's "Mr Market" and "margin of safety" then make an appearance, placing Greenblatt firmly in the value investing camp. But he explains that value investing isn't easy, and you're up against finance professionals.He's come up with a "Magic Formula" for us to use. It's been heavily and successfully back tested. Yet in concept it's very simple:a) Find the earnings yield of companies, and sort them from highest to lowest. Give the best score of 1, the next a score of 2, and so on. This searches for the best bargains.b) Find the return on assets for the same companies, and create a new list sorted by ROA. Again, give them scores, 1 for the best, etc. This searches for great companies.c) Add these two numbers together to get the company's magic formula score. This gives great companies at relatively cheap prices.d) Buy the top 30 companies. This creates a portfolio, to minimise risk.e) Sell them after 12 months, and repeat.I forward tested it back in 2010, reviewing the results a year later. Some companies did badly, some extraordinarily well - as Greenblatt predicted. The key was the portfolio did well. It did slightly better than the S&P 500. I noticed that some of the performance was driven by two or three companies which were taken over. I've repeated the exercise in following years, when it also did well.It's easy to find US companies which fit the bill - he shows you on his website. For UK stocks, you can get them via the "ShareScope" app.If you're into value investing, you should take a look at this book. If you want your children to understand the stock market and invest for their future, you can't go wrong with this.

This book contains a tested systematic approach to stock market investing that most people can implement on their own.As I write this review, there are already 266 reviews of Joel Greenblatt's "The Little Book..." on Amazon. Why bother? One reason is that since first published in 2005, Greenblatt's investment accomplishments have become even more widely appreciated, giving added credibility to his advice. For example, he is featured as one of the "Hedge Fund Market Wizards" in Jack Schwager's recently published book of the same name Hedge Fund Market Wizards (please see my review of that book). Additionally, at present returns on traditional savings accounts are very close to zero and the US Treasury Note yields a mere 1.7 percent. Any of us who envisioned living in retirement from the interest on our savings were sadly mistaken. Greenblatt's investment system as presented in this book may be one of very few, or the only, approach that is likely to generate low-risk investment results that might really help savers and seniors meet their previous expectations.The writing style is clear and simple. The author explains investment terms like return on capital and earnings yield in a conversational tone without condescention. He uses a couple of example fantasy businesses in an entertaining manner to illustrate the concepts. As the book progresses, he uses these basic examples as the foundation for more advanced concepts (not complex, but necessary). Necessary for what? For the reader to believe in the investment system that Greenblatt presents in the book to a degree that the reader will stick to the system without variance for a period of years in order to enjoy the benefits that accrue to long-term investors (think Buffett, Rogers, Graham, Bogle, Templeton).I urge you to read the book review by "Value Investor" on these pages. He lays out the reasons why this system is very likely to perform well over a period of years. In a nutshell, it is likely to work because the author has done extensive testing of the system, uses it as the basis for his own hedge fund's portfolio management, and because it takes considerable patience and fortitude to follow (traits not found in excess on Wall Street).One aspect that I really appreciate is the author's willingness to concede that many investors want a higher degree of involvement in selecting the stocks for their portfolios. They may be uncomfortable following a more mechanical system. He addresses this issue by giving clear guidance on how one may still follow the system even with the addition of an element of personal discretion, depending on the investor's level of expertise, time commitment and available capital.Finally, the author maintains a free website (now for 7+ years) to aid investors with portfolio selection. This is a high value service in my opinion.I highly recommend this book to any saver or investor, or speculator or trader for that matter, who wishes to increase their returns on investment and improve their overall portfolio performance. Five stars.

Simple and straight to the point. An essential part of anyone's library, let alone investors...

Didn’t reach the expectations