The Little Book that Beats the Market: Book Review
THE LITTLE BOOK THAT BEATS THE MARKET
“Make everything as simple as possible, but not simpler,” is what Einstein said. Joel Greenblatt has done a fantastic job of writing a book that will appeal to both novice and professional investors alike. Greenblatt has a rather unique resume of being an extremely successful practitioner, a professor, and now an author.
“The Little Book That Beats The Market” is a very quick read and Greenblatt keeps the concepts interesting and uses very plain, simple and easy to understand language. Each chapter also highlights key points to remember which further assists in learning the concepts.
The book focuses on two key concepts that are not dissimilar to Warren Buffet’s practice of buying “a wonderful company at a fair price.” Although he doesn’t mention Buffet, these two key concepts are the components of Greenblatt’s “Magic Formula.” Greenblatt defines great companies as having a high return on capital (i.e. the company makes a very good profit relative to the amount of capital needed to run the business). Once great companies are identified, the challenge is to buy them at great prices. This is where Greenblatt explains the concept of earnings yield (i.e. the amount of earnings relative to the current stock price).
Greenblatt does an excellent job of explaining the technical aspects of the Magic Formula. More importantly he explains why the Magic Formula works.
“The Little Book That Beats The Market” is highly recommended and will prove to be a timeless book for anyone interesting in successful investing.
Key concepts discussed:
- Return on Capital
- Earnings Yield
DeepValueInvestor.com is dedicated to value and deep value investing. Our website has a variety of resources including education, the latest deep value investing news, discussion on value and deep value investing strategies, related book reviews, deep value investing quotes, and our Coattail Corner newsletter that follows selected stock purchases of successful investors.
*** Learn more about value investing and follow value investing stock picks - sign-up for our free newsletter! ***
DeepValueInvestor.com regularly reviews books on deep value investing and value investing. Check out our dedicated page on value investing book reviews.