Book Review: The Little Book That Beats The Market by Joel Greenblatt

by Manshu on May 18, 2010

in Books

I read The Little Book That Beats the Market by Joel Greenblatt last Sunday, and liked it quite a bit. The book promises you a magic formula that will give you above average stock market returns over the long run, and quite honestly I do believe that if followed – this formula has the potential to give above average returns in the long run.

Will I be using this formula? – No.

Personally, I have no way of gathering the information on Indian stocks that this formula needs, and even if I had, I still wouldn’t use it because the work involved is a lot for someone like me. The other reason is that I use something similar, it is of course not magical or anything, and I have not made pots of money, but as far as the approach and thought process go – it is similar.

That said, this book is still a great read for anyone who is interested in value investing, and looks at stocks as instruments for long term investments, and not daily trading or punting.

Joel Greenblatt has done a great job of explaining how one should look at stocks, and this little book is very good to shape a foundation on how you should approach investing, and your thought process about it. If you are like me, you would be really skeptical of a book that promises magical formulas and beating the markets, but the content will surprise you. In fact, at one point the author goes to say that some people should not invest directly in stocks at all – how is that coming from a book which teaches you to beat the market?

The writing is clear, easy to read, funny and makes sense. The formula itself is not so difficult to follow and is in fact quite doable. But let me reiterate, if you are buying the book to follow the formula – don’t, because it is unlikely that you will follow it.

You should only buy The Little Book That Beats the Market thinking that it will give you an idea on how to think about stock, value and long term investing, and no magic bullet.

Disclosure: Links are affiliate.


{ 4 comments… read them below or add one }

Vibhu Mohindra January 12, 2011 at 11:24 PM

I’ve been following this strategy for four years, and have made my implementation of it for Indian stocks available here. This should reduce the amount of work you need to do.

http://wispym.com/seaside/stocks

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Manshu January 13, 2011 at 7:07 AM

The implementation is good, congratulations. Where do you get the data behind this tool Vibhu?

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Vasim November 19, 2013 at 1:56 PM

Hi Vibhu,

According to Wiki, you should exclude financial and Utility stocks when calculating the Magic Formula. However you first company (MC >1000) comes to be DHFL. Isn’t this a financial company

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Craytheon March 2, 2012 at 5:00 PM

>Personally, I have no way of gathering the information on Indian stocks that this formula needs, and even if I had, I still wouldn’t use it because the work involved is a lot for someone like me.

This is precisely why we started Craytheon.com. We simplify fundamental analysis and stock valuation for the individual Indian investor. You can get a list of stocks selected by the Magic formula and other financial analytics and charts at Craytheon.com. Check it out.

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