The Little Book That Beats the Market - Joel Greenblatt

[npg]

'The intelligent Investor' is the kind of book you take out in order to scare your audience to death.

[donj441]

As mentioned by someone else, I too have done some paper trades by using this book. I've also done some using a combination of The Little Book and the MOS Calculator. Although I only have a couple of month's of data, and it is by no means scientific, I've gained 1.6% by using strickly The Little Book That... Now, taking the same list I generated for stocks from the above list, I ran them through the MOS calculator. That group has a 5.7% increase in 2 months. In both cases, I choose 3 stocks per month.

Albeit early in my testing, annualized earnings of over 30% look pretty inviting.

Don J

[allen]

On August 31, I ran the 'magic formula' results through the MOS calculator, but at that time only found 2 stock that passed both tests, MTEX and OVTI. MTEX was $14.48 and OVTI was $16.60. I never attempted to paper trade MTEX, because it seemed to much like a flim-flam Amway-type operation to me.

Today, they closed at $14.17 and $14.49 respectively. In the interim, MTEX topped $19 at one point, so we could have made money IF we knew when to get out. OVTI has never really gone anywhere.

We are not impressed.

[Gunnski]

Please understand he stresses it is a LONG proposition. Hre recommends 3-5 years. Its not swing trading.

[allen]

You are correct. And I noted that MTEX shot up 10% today alone.

[npg]

This book is special.

It is easy to see why Warren Buffett congratulated Greenblatt on this book. The key principles outlined in this book are actually part of Buffetts financial calculation to determine whether taking a position is a good idea. Buffett himself puts a lot of emphasis on earnings yield (the inverse of the PE ratio) and compares this metric against the 10 year US treasury bond yield. It's classic Graham.

The rationale is very Buffett as well. The author does not pretend that stock picking is something a lot of people can be good at and, to his credit. highlights that hybrid approaches are equally valid.

Exploring Joel Greenblatt’s Magic Formula for Picking Value Stocks - Seeking Alpha

This book does not need to drop big names to get the point across. It's a brilliant introduction to value investing. It's is entertaining to read. The style is simple, clear and concise, devoid of unnecessary jargon.

If Graham and Buffett are your cup of tea, this is a much better book to start with than Phil Town's Rule#1.

Brilliant book!

[rharmelink]

The only real problem I have with the book is that it doesn't give enough information on how to construct ROC properly. I've seen many people try to replicate the current picks he posts on his web site, and many articles have been written about trying to replicate the backtest results. None have been all that successful.

There was an interesting Barron's article:

http://www.quantitativeinvestment.com/barrons.pdf

...that suggests an easier to use 2-factor model of earnings yield and profit margin might be a better way to go, since "real world" databases can't readily duplicate the ROC calculations.

[npg]

Formula or not forumla. It's pretty irrelevant for my purposes.

Greenblatt provides the best introduction to Buffett-like valuations --without even mentioning the name.

Fact is that earnings yield is a very important yardstick. Also, for somebody not willing to do any research whatsoever Greenblatt recommends a 20-30 stock diversified portfolio (and so does Buffett). However, for people willing to pick and analyze, the resulting scan is a very good starting point for ideas.

Ergo, what I should have mentioned is that his scan is a very good starting point for stock ideas.

Thanks for the barrons article. There are tons of other articles out there either confirming or disputing the results he put forward.

But then again, Phils approach is equally criticized. Only that Greenblatt has a much better proven track record in the investment business than Phil.

Warren Buffett recommends any investor apprentice to read as many investment books as possible, to get exposure to as many competing ideas as possible. Then to make up one's own mind.

I take his advice :)

[petekoch]

Although I enjoyed The Little Book, I thought Greenblatt's first, You Can Be A Stock Market Genius, was vastly superior. The latter is more Michael Price than Buffet or Graham, and I found it to be something of a mini-MBA course in spinoffs, mergers, arbitrage, rights offerings, bankruptcies and restructurings.

Many idolize Graham or Buffet or Munger; I always liked Jersey Mike (once dubbed the scariest SOB on Wall Street) . Alas, Price has retired, but I always remember his words (which I'll try to paraphrase): "the best values usually follow crises or scandals".

[npg]

Yes. Greenblatt's other book is a must read.