If you are a fan of Magic Investing, you should read this. Well written, a quick read, and gives some background to the online website.

Well worth a read and a good start for the beginning or intermediate investor who wants to beat the market over time.

First of all, I purchased this book, and did it as it suggested, but failed!!!

then I tried to learn some other basic book, such as "Stock Trend analysis", you will find this book did NOT teach you anything, and just ask you to believe some "Magic" in the world, if everyone has this book and follow what the author suggested, then everyone will make money from stock market, it is simply not true!!!

1. The best equation is buying good companies with high rates of return on the capital and high earnings yields.
2. Margin of safety assumes the investor can not know the future; therefore, the best opportunity is to buy the stock of a good company, at discount. The optimum discount pricing for buying is near or below liquidation price. Graham identified prices at this level, as, "unreasonable prices". Most, investors shy away from seizing the opportunity at discount prices fearing greater valuation losses due to some undiscovered information, they are not aware.
3. Buying stock is equivalent to owning a percentage of the company. Knowing the value of the company and having confidence the future value of the company will appreciate validates the buying price of the stock. Otherwise, he will invest his money into bonds and gain a fixed interest income.
4. Investors have a hard time at making predictions. For some time after the great depression stock investment was considered risky.
5. Suppose, you own a company and that company is making a profit. The business valuations are known and you decide to sale part of the company as stock. The stock price can be easily computed. The stock price is equal to the business valuation divided by the number of stock. The stock price, at this point is deterministic. The company continues to operate and report profits. The profits are reflected on the income statement. However, the price of the stock fluctuates randomly away from the price too earnings, it initially started. The price swings vary, at times people are paying out outrageous price; and at other times missing bargain prices. But should you care that the price is fluctuation wildly? No. You don't care, about the causes, for the price fluctuation, only that price fluctuated!
6. You want to know the valuation of the business and using this valuation will predict the stock's value and support price to buy and sale. Buying high earning stock at bargain price allows you to earn income from dividend payments with relative without price dropping out.
7. The equation equals buying stocks with high earnings and high return on capital; these stocks come from good companies and are bargain priced.
8. How do we choose good companies at bargain prices? Find 30 stocks with the equation criteria for your portfolio. In one case study, the stocks performed 30% returns for 17 years. Choose companies through a ranking system. Companies with high rates of return on the capital and high earnings yields are ranked highest. Companies with good brand name can perform against competitors, who want a portion of the profits. Companies with a high return on capital are likely to achieve an advantage of kind. Eliminate companies that earn ordinary or poor returns on capital. Readjust your portfolio every three years according to rank. The equation works better than market averages and did not lose money. Don't buy and sell short term because the chances are high that you will lose, instead, invest long-term. Do be afraid of losing clients during short term drops in the valuation of the portfolio, instead, have confidence the equation will work long term.
9. If we know how a group of stock high earnings and high capital returns perform on the average, we gain greater confidence of how they will perform in the future. However, short term price fluctuation will not reveal any future pattern. You will have to be patient. The equation is a long-term performer and eventually outperforms the competition significantly. The equation will work in the long-term.
10. Look for companies you believe will be able to continue in business for many years and companies that should be able to grow their earnings over time.

Unless you are a novice investor, what you're paying for is the "magic formula" given in the middle of the book. The rest is a simplied version of how the market works.

I am a great fan of Joel Greenblatt. This book is very simple to understand and for some more advanced investors, it may be too simple. But, I personally like simplicity because I think that people tend to complicate things too much. In investing, no one really needs to run complicated forecasts and models to see whether a stock is trading at a good price. If you need complicated calculations to convince yourself that something is a good deal, then it probably is not. If most of the mutual fund managers followed Mr. Greenblatt's value investing philosophy, they would do much better than average. Mr. Greenblatt did an excellent job simplifying a somewhat complicated subject of investing.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

I really like the simplicity of the formula. For someone who invests and believes in the value approach this book makes sense. There are some good valuations used for buying undervalued stocks. But queezy isnt even the word I could use about using last years #s for future earnings. That just screems yikes!

Also, I didnt like the fact he has a website that just spits out companies without showing the rankings OR how the company got on the list in the first place! I cross referenced some of his stocks on the list to inputting the companies #'s in his formula (the formula used in the Appendix ... which I really do like IF you know where to find the info on the Balance Sheet and Income Statements) and they werent even close!!

But as for the formula itself I personally believe its worthy enough to at least consider. Unfortunately, its going to take a good 5 years for me to update this review. But as for now I would trust it only as far as how much money you are willing to invest into "speculating" and even then do your own calculations instead of blindly going by the website. BUT if you insist on taking someone elses word instead of doing your own homework I would almost insist that you use S&P's 5 star. It has a proven (emphasis on that word) track record of beating the average.

I really like the simplicity of the formula. For someone who invests and believes in the value approach this book makes sense. There are some good valuations used for buying undervalued stocks. But queezy isnt even the word I could use about using last years #s for future earnings. That just screems yikes!

Also, I didnt like the fact he has a website that just spits out companies without showing the rankings OR how the company got on the list in the first place! I cross referenced some of his stocks on the list to inputting the companies #'s in his formula (the formula used in the Appendix ... which I really do like IF you know where to find the info on the Balance Sheet and Income Statements) and they werent even close!!

But as for the formula itself I personally believe its worthy enough to at least consider. Unfortunately, its going to take a good 5 years for me to update this review. But as for now I would trust it only as far as how much money you are willing to invest into "speculating" and even then do your own calculations instead of blindly going by the website!!

I read this book after hearing so much from my boss, and my bosses boss. Certain moment's it was way to simplistic, for my style, but pretty clear explaining the basic principles of the market. My wife that is not a Market savvy person, enjoyed so much and after read this book she got more clear understanding about Investment.

I really recommend this book to anyone that want's to understand better basic principles of the market with out getting too involved with esoteric concepts and formulas.

This book contains a "magic formula" which will enable you to buy companies at bargain prices. This formula will enable you to beat the market and professional managers by a wide margin the low-risk way. However, I will not disclose the details of this formula in this review lest I will spoil the fun. You just have got to buy the book. Joel Greenblatt, the founder of Gotham Capital, has an average of annualised returns of 40% for over 20 years. So, everything he says should be taken seriously. Prof Greenblatt also explains why the formula would still work even after everyone is cognizant of it. The use of magic formula is very easy. You use only common sense and 2 simple concepts, and you have to review it only once every few months. What Prof Greenblatt would have you considered is an index-fund-plus where the plus comes from including in your basket of stocks only good businesses settling at low valuation. Finally, this book will teach you: (1). How to view the stockmarket; (2). How you can beat the market all by yourself; (3). How to find good companies at bargain prices and (4). Why success eludes almost all individuals and professional investors. Digest this book and you will easily and surely beat the market.

I read the entire book and found several faults with his presentation, in particular, he left out several data sets and just *says* that they performed well. He also did not present directions on how he actually computed any of the data as other reviewers have stated. He also forcefully states a couple of times that you are not a financial expert and he is and so you should not trouble yourself with trying to figure out the formula, just trust it. He even tells you not *not* look at and analyze annual reports for companies. All of this caused me to ask what his *real* method for beating the market is.

You must first realize that *he* is trying to beat the market. He doesn't care about helping *you* beat the market. The only way to actually make money in the stock market is to figure out how to take it from others and absolutely no other way. He most likely used a number of data mining techniques to find the formula that looked the best. Once he had that, he concocts a plausible reason for believing the formula and then he publishes it along with the good data sets while leaving out the bad data sets. Voila! Instant success.

So, here is his real method for beating the market.

There is one formula to use and it will predict the *same* set of stocks to purchase for everyone who uses it! Since he told you not to look at annual reports you have to wait for the information to be made available from other sources. However, he will use the annual reports to figure out which companies will be predicted by the formula *prior* to you having access to the same information and he will purchase them.

The predictable result? Because his formula says which stocks to buy the price *will* go up because everyone who is using his formula will drive the price up! He then takes his profits and waits for the next cycle.

This is basic strategy folks, create a demand where is isn't one knowing that it will collapse because it is just than, an artificial demand. You just have to be quicker (and I am sure he is) than the collapse which might be 1 month at best. You will purchase and still be holding them when the price bubble collapses and you, the user of his formula will lose because you are expecting the price to continue rising. It won't.

Well, most of the time the strategy presented in this little book will beat the market according to the author, Joel Greenblatt. We found this book to be a very easy read with an easy to understand concept for individual stock investing. At times the author practically apologizes for the simplicity of the strategy, which is really not necessary. Although, with an abundance of highly complicated books and strategies on the market it is understandable why these apologies were made and equally refreshing to read a book that is so straightforward and takes investors back to the basics of stock picking. In spite of the fact that it is a few years old, this book is a must read for anyone who is now utilizing or is considering utilizing individual stocks in his investment portfolio. The author's "magic formula" for investing removes all of the emotion from picking stocks for a portfolio, which makes it perfect for people who don't believe in hunches. We highly recommend this book.

This is one of the many investment / trading books that I've read, but unfortunately NOT kept on my bookshelf. Don't get me wrong -- it's a very readable book that does a good job of teaching some fundamental (no pun intended) concepts.

But the "magic formula" thing worries me. I've done my own research on "magic formulas" that screen stocks based on fundamental measures like P/E, PEG, and Dividend Yield and found them to be not so magic after all. See Stock Fundamentals On Trial: Do Dividend Yield, P/E and PEG Really Work?

They seem to work well in a bull market (the onset of which you can determine from a price chart) and then often break down spectacularly when the tide turns (as recent events have shown).

In fact, Joel says on page 6 of the book that:

"If everyone knows the magic formula and everyone can't be rich, pretty soon the formula will stop working."

(and then he goes on to present a magic formula)

The above quote states a good case for "trend following" or "market timing" if ever there was one. Even if the formula does help you to identify good stocks to buy (and it might); do make sure you get off when the music stops.

The author's use of the word "belief" also worries me a little: like, if you believe in the formula then it will work. I'm sure that if enough people believe in it, then it will work, for a while. And maybe if I start believing in fairies, Tinkerbell won't die.

So read this book as I would read The Bible: enjoy it, maybe learn some lessons from it, but don't take it literally.

Tony Loton, author --
Stock Fundamentals On Trial: Do Dividend Yield, P/E and PEG Really Work?

This book can be read by teenagers, as well as people with little education. It explains everything with a simple example, and it repeats the main message across the sections to help you memorize. Because of these same reasons, it reads very slowly and may make you tired of its pace.
However, it provides a summary section in the end of every chapter that allows you to quickly get a gist. Later chapters actually have more detailed contents.
I recommend it if you know nothing about investing, as well as to give to your kids.

First book I ever read about the market. Very simple and to the point. Great place to start your reading about investing.

Great info with a humorous touch and a link to data to use in applying what you learn. I am not going to apply it until a more normal market comes along though.

This brief text is a good read for the novice investor who wants to learn more about equity valuation. Basically, it distills the drivers of stock values into two components: return on assets and earnings yield. Buy stocks with strong numbers in both of these categories and, over time, you will outperform the market. Only problem with this approach is that stock values are based on expectations of FUTURE performance. Stocks often have high earnings yields today because professional stock pickers expect their finances to degrade in the future. Forecasting future performance is what is most important. The author fails to stress this concept.

For the novice investor, the author is able to explain some of the more fundamental concepts of equity valuation in a straightforward manner. Yet, this text would be only one of a several books someone should read before trading individual stocks instead of purchasing mutual funds.

I read every chapter of this book while at Borders except the last one, so I cannot vouch for the effectiveness of the "Magic Formula" website that seems to generate so much controversy. I can, however, clarify a glaring misconception in what Goldblatt wrote in his book.

Contrary to what many of the reviewers wrote (especially the negative reviewers), Goldblatt was not insisting that people focus only on Return on Assets and P/E ratio. Goldblatt was also not insisting on a definition of "capital" (within his concept of "return on capital")that leads to an over-emphasis on services over manufacturing. He illustrated perfectly his two pieces of investment data in the following ways:

First, Return on Capital can be best interpreted as a return on invested capital. If it costs $1 million to build a retail store and that store, within a year, generates $2 million, then the ROC is 100%.

Second, his other measure is really a profit-yield per share. You get this measure by taking the amount of profit generated by a firm, dividing it by the number of shares outstanding, and then dividing that by the share price times 100. So, if a company has a $1 million profit and it's selling a million shares for $10 a share, then the profit-yield per share is 10%.

These two concepts seem to form the core of value investing in that they discipline a person to invest in the market as if they were buying a business or a partnership share in the business. The relevant question in any such investment is always "how much will my partnership share make?"
All other factors are just risk management.

The trick is finding data to generate these statistics. I don't know how well Goldblatt's website does that.

Very insightful, and excellently written. Despite the name this is not another shallow book, full of cliches and nothings. In a really entertaining fashion Greenblatt explains in very simple easy to understand illustrations, what stocks are, how they are traded and the basic principles of the stock market and market fluctuations. He then builds on these principles to teach the fundementals of wealth building that most successful investors utilize. Alot of basic principles that somehow a lot of smart investors forget. Great reading for the experienced, and novice alike! This book should really be required reading in high school and/or college.

As someone who is not in the real savy in business and has little to no financial advisory background- this book is right up your alley if you just don't understand the complexity of the stock market but are still interested in investing.

My brother is a financial analyst for a fortune 500 company and could not get me to understand the stock market and mutual funds etc- for the life of him! He read this book and then forced me to read it as well. I am glad I did because it was easy to follow and made me excited about investing my money into avenues that will provide much higher yields that 5 to 8% a year.

The author wrote this book for his middle school children to help them understand investing in the adult world so to speak- Well he did a phenomenal job and published it for the rest of us-

A good pick for beginner investors or people who would like to invest their money in stocks and funds with little background in the field. This would also be a good "starter" book for someone who wants to get into the stock market.

This is a book I'd give my son, if only because its brevity and simplicity make it likely he'll read it. Moreover, it provides the secret to having any kind of success investing in stocks--a system. Most any system will do-- whether it's Dogs of the Dow, Schwab's double-play recommendations (A-rated stocks in A-rated sectors), or Greenblatt's best of breed in terms of price/earnings ratio and return on assets. The precise formula is of far less import than following a disciplined regimen of buying, adding, holding, and selling that leaves emotion and impulse out of the picture. Greenblatt's approach, in my estimation, could lead to excessive buying and selling. Go with a proven company paying a good dividend, have the dividends reinvested and purchase more shares on the dips (unfortunately, it's harder to find companies that have commission-free stock purchase plans), and stay with a time horizon of no less than five years when placing stop loss orders. Watching paint dry is not nearly so boring when you're paid to do it. Give The Little Book a look, but more importantly, choose a favorite story and stick to it.

The Little Book That Beats The Market is a great starting point for those interested in value investing. It's especially relevant for beginners. Greenblatt clearly and simply explains what makes a stock a good value investment, and the core theory of "buying great companies at low prices" is a simple definition of value investment. For beginners, following the strategy outlined in the book should offer excellent investment returns.

For more experienced investors, the "Magic Formula" makes a great initial screen. Using the "Magic Formula" results, you have a list of promising investments to research. In fact, there are websites like [...] that attempt to do just that.

A short, fun, and profitable read for beginners or experienced investors, I highly recommend this book.

I liked this book as it gives one a very simple approach to investing that works - especially in a bull market. I delayed writing a review until i had some experience with the approach and have made more than 50% on my investment following the approach for the last two years. I did find that you need to put a stop loss target in place as well, otherwise there are some companies that show up thru this approach that go "belly up".

The author merely states that you should buy stocks with the best earning yields and best returns on capital. The end. No other useful info is given. He also says to buy these stocks at bargain prices but never states how to determine what a bargain price is. Does the system work? Who really knows? Why? Because the author doesn't mention any of the stocks that were purchased over the years that attained these stellar results he claims. One of the biggest problems investors have is their inability to hold stocks once they've gone down. Many people quickly dump their holdings and move on, a sure-fire way to lose money.If you've done your research and due diligence you should actually be happy your stock has gone down because now you can buy more at a better price. If investors could, in fact, hold on, many other formulas would work just as well, if not better(especially with the exorbitant expenses involved with this one). The trading costs and/or tax implications with this system should make one pause since both substantially eat away at total returns(something that he did not mathematically figure into his posted results). Skip this book.

This book merely states that you should buy stocks with the best earning yields and best returns on capital. The end. No other useful info is given. He also says to buy these stocks at bargain prices but never states how to determine what a bargain price is. Does the system work? Who really knows? Why? Because the author doesn't mention any of the stocks that were purchased over the years that attained these stellar results he claims. One of the biggest problems investors have is their inability to hold stocks once they've gone down. Many people quickly dump their holdings and move on, a sure-fire way to lose money.If you've done your research and due diligence you should actually be happy your stock has gone down because now you can buy more at a better price. If investors could, in fact, hold on, many other formulas would work just as well, if not better(especially with the exorbitant expenses involved with this one). The trading costs and/or tax implications with this system should make one pause since both substantially eat away at total returns(something that he did not mathematically figure into his posted results).

This book merely states that you should buy stocks with the best earning yields and best returns on capital. The end. No other useful info is given. He also says to buy these stocks at bargain prices but never states how to determine what a bargain price is. Does the system work? Who really knows? Why? Because the author doesn't mention any of the stocks that were purchased over the years that attained these stellar results he claims. One of the biggest problems investors have is their inability to hold stocks once they've gone down. Many people quickly dump their holdings and move on, a sure-fire way to lose money.If you've done your research and due diligence you should actually be happy your stock has gone down because now you can buy more at a better price. If investors could, in fact, hold on, many other formulas would work just as well, if not better, with the exorbitant expenses involved with this one. The trading costs and/or tax implications with this system should make one pause since both substantially eat away at total returns(something that he did not mathematically figure into his posted results).

This is a nicely written book by an expert in the field. It is very easy to read and informative for beginners and intermediates. The main idea in the book is to buy stocks of companies that are likely to have good growth (high ROE) and that are sold at a discount (low P/E). The concepts are very simple yet very powerful. Greenblatts writing is very enjoyable to read. I definitely recommend this book for beginners and intermediates.

This short book can be read in the bookstore standing unless you want to buy if for a kid who is interested in investing. Greenblatt asserts that basically if you pick stocks base on PE and ROA you will beat the market. As Einstein warned, "A scientific theory should be as simple as possible, but no simpler". The idea that just by looking at 2 variables (Greenblatt also advocates frequent selling and buying of new stocks which is even more ridiculous than the ROA and PE idea) is overly simple. Before anyone tries this strategy I recommend trying it with imaginary money and convincing yourself how ridiculous the idea actually is. I think the appeal to investors may be the length and simplicity of this book which can be very dangerous to their stock portfolio.

Greenblatt deserves some praise for his clear writing and simplification of some concepts. This is where the real value of this book lies. One can read books 10 times the length of this and get less practical information. The language is so clear and simple that it would make an ideal gift for a 10 year old interested in investing.

I've read Joel's other books and this one is a very good playbook for the average retail investor. It provides a simple, yet effective strategy to beat the market, as long as you do a little work each quarter and stay committed. But that is good advice regardless of what strategy you pursue. Ultimately, the way to beat the market is to be concentrated and stay on top of your investment strategy. Neglect and over diversification kill returns. The book provides the framework to reduce emotional decision, enourage disciplined turnover, and avoid overvalued stocks and value stocks that may be cheap for a reason.

This is indeed a little book, and it could easily be littler. If you skip to the 14th chapter, which is at the very end, you finally find the real meat. His method seems plausible enough and he has supposedly tested it historically. In a nutshell he tells you to buy 5 to 7 low PE, high ROA stocks every 3 or 4 months for one year. Then, after about a year (less for losers, more for winners,taking advantage of capital gain rules), sell that group of stocks and pick an equal number of similar replacements. He's even done the statistical work by listing appropriate choices on his updated free website. Now, you don't even have to get the book, eh? That is, unless you want to know where to find appropriate stocks or why his method is historically a wining method.

Great book for people that don't want to spent too much time making money. Accompanying website pretty well does all the work for you. A great book from a great performer in the investment world.

Many have criticized this book as being simplistic. And it is. That's because it's really a very simple concept that has been around for a while now. That is, that buying a basket of undervalued stocks will provide better returns than the market average. The system presented here is just a refinement of the low P/E approach that has been tested in many studies and that has been proven to work.

I believe the reason it is presented in such a simplistic manner is that people still insist on using short term trading strategies and chasing hot stocks in attempts to beat the market. Maybe if they are spoon fed the information, they will actually believe it.

Another criticism is that the author stresses that you must have faith in the method to be successful. Some have misrepresented this to suggest that you are asked to blindly believe in the method. This is far from the truth. There is plenty of data presented and nothing about this method conflicts with common sense or with common knowledge. What the author is saying is that you need to fully accept and understand the rationale of the method and not be shaken by periods of under-performance.

This is the perfect book to start as a Value Investor.

Greenblatt will show you the way to find out of favor stocks that are poised to make a comeback and putting statistics on the table as good books do. No accounting background needed and no need to suffer boring technical stuff and even better is that after finishing the book you won't have to walk alone because Greenblatt offers his website for free to find investment candidates.

After you finish with this book I would suggest you to try the Little Book on Value Investing by Christopher Browne.

If you're looking to invest in individual stocks and incorporate a method on how to make your picks, don't miss this truly fantastic book that will hold your hand along the way.

I enjoyed reading this book and started tracking 24 recommended stocks in February. The formula was working quite well until August when it lost all gains and some of the principal but I have confidence that this basket of stocks will rebound by year's end.

He wrote this so anyone can beat the market average--especially beat most of the mutual fund adverages with little risk and little tracking. It is O.K. to buy Blue chip stocks at a lesser cost and hold them as the price goes up. This is not for active traders, but general investors who think they can invest at least as well as many mutual fund managers. You can!

I don't know much about investing but was intrigued by this concept. So far in 4 months I am up 22%, beating every average out there. Not bad. I'm a believer.

Joe continually says that the simple concepts of this book will go over the sophisticated investors heads'. After reading the reviews on here, it appears as he is correct!

So, if you are open to new ideas and don't think you know everything, I'd say give it a shot.

I don't really appreciate Greenblatt's excessively condescending tone in this book. He approaches his audience not as 12 year olds, but as 8 year olds with learning disabilities and a corny sense of humor. His constant reference to his MAGIC FORMULA is incredibly annoying and misleading. It's not particularly magical, and there's nary a formula. And basing his entire case on 17 years worth of data analysis is pretty weak, too. There's a lot of hand-waving.

But for all the belly-aching over the lack of rigorous specifics from other reviewers, rest assured Greenblatt's numerical analysis is actually right. After looking at Compustat and trying to replicate his results, I roughly got his numbers.

Begrudgingly, I have to admit that for all the book's flaws with its childish approach and the expectation that we should take his numbers as given and its short-shrifted logic, Greenblatt's value-based approach to investing still shines through. He does a good job of emphasizing some hallmarks of value investing -- patience, discipline, and focusing on cheap assets. And his inappropriately named "magic formula" does highlight stocks that many investors would view as "value." So, despite his complete lack of specifics on virtually every topic in the book, what he does offer is still valid. And his website is free and does exactly what he says it will do.

I truly despise and resent the last chapter -- "what will you do with all of the millions you haven't made yet?" It's inappropriate to speculate on unmade money that isn't his. But then to go a step further and have a professor of all people suggest we should be giving money to education just stinks of self-interest. And then to go even further and condemn public education because of teacher unions and its anti-capitalist and bureaucratic approach as hopeless is a horrendous way to end a book, even if he is completely right.

True, there's a lot of fluff in this book. But it has its high points and value investors of all stripes and sizes can still read it and get something out of it. I'm glad I bought it.

It was really a quick read. Very easy to follow. Regardless if you believe the authors opinion or not, it's still worth the read.

A total waste of time and money for me, all in the book can be said in one sentence, which was already in Benjamin Graham's investment principle, and was much better put in Graham's words. The whole book is very repetitive, keep repeating the same thing over and over. The worst investment book I have ever read.

The first 40 pgs might be useful to give children an idea of stocks, but for most adults with some awareness of stocks, the examples are annoyingly simplistic and cutesey. However, I read the entire book and then checked out the Magic Formula website. My suggestion to those of you thinking about buying this book is to check out the website first. The author is not responsible for that site, but the stocks listed there, based on his formulas, are extremely disappointing picks, and don't seem to have any relation to the low P/E's he advocates. Greenblatt offers two analytical ratios, but to use these is time-consuming and bothersome. Finally, Greenblatt states repeatedly that you MUST give his technique at least 3 years to work. Repeatedly he says, we must believe! I don't know about you, but I am constitutionally unable to make that kind of commitment, based on reading yet another grandiose stock market promise. Greenblatt is obviously a successful trader, but that doesn't mean his readers, simply by following his technique, will be able to duplicate his success. I'd suggest checking out Lowell Miller's book on dividends, and also Validea.com, which analyzes and ranks stocks based on the methodologies of 7 or 8 gurus ( Dreman, Lynch, O'Neill, O'Shaunessey, Buffett, Motley Fool, plus one or two others .)

Easy to understand facinating concept. The anoying thing is I still havn't started to use the system.
M

As a near novice in most things to do with the stock market, I've been on the lookout for a book that would provide a very simple overview and the best investment strategy. Greenblatt's Little Book That Beats The Market caught my eye, but I was skeptical, having read Andrew Tobias' famous book, The Only Investment Guide You'll Ever Need. Tobias' book argued that most ordinary investors can't expect to beat the market, and should therefore invest in the stock market as a whole, by investing in a no-load, broad-based index fund with a company like Vanguard. Tobias pointed out in the 2005 edition of The Only Investment Guide that broadly based index funds tracking the whole market outperform 90% of stock managers and often charge much lower fees.

But lo, now Tobias, treasurer of the Democratic Party, in the forward he has written to The Little Book That Beats the Market, has stopped singing the virtues of mere broad-based index funds, and has dropped his general skepticism about beating the market as a whole. Tobias tells us Greenblatt knows what he's talking about when Greenblatt claims there is a very easy way to strongly beat the market over the long term. Tobias in the forward to the book even urges Vanguard to set up a market-beating fund based on Greenblatt's "magic formula," and writes that the next edition of The Only Investment Guide You'll Ever Need will steal very liberally from Greenblatt's Little Book That Beats the Market.

Greenblatt's book is so clear and easy that most teenagers can understand it. Greenblatt even has a website that allows one for free to instantly find, in terms of his magic formula, the top 25 and top 50 stocks out of some 3,500 on the market. He then has a very simple seven step system (requiring no stock research) showing you how, in a few minutes every few months, you should purchase and sell stocks, in order to get returns that very strongly beat the stock market as a whole. He also offers proof in the book that his magic formula works: he shows for example how using it over the 17 years from 1988 to 2004 would have provided returns of over 30 percent per year on average.

If just any fool were pushing this strategy, I'd ignore it. But since Andrew Tobias is supporting it, and since Greenblatt himself has gotten 40% to 50% returns for many years, it looks like his presentation should be taken seriously. (You can't expect 40% to 50% returns with this simple method though; Greenblatt, in his own investing work, only uses the simple "magic formula" approach to stocks as one of many inputs and does a lot of additional research the average investor has no time for. But Greenblatt's testing of the simple, easy, magic formula presented in The Little Book That Beats The Market suggests it can generate market-thrashing 20% to 30% average annual returns over the long term, still extremely good.)

I should comment on some details in the book's appendix, which you won't need to understand to grasp Greenblatt's simple book. An earlier reader-review of the book mistakenly complains that Greenblatt's so-called magic formula is not interesting because it is based on earnings to price ratio (E/P) of companies and the return on assets (ROA) ratio of companies. But if that reviewer had read Greenblatt's book more carefully, he would have seen that Greenblatt's formula does not use E/P and ROA. Instead of E/P, Greenblatt uses earnings before interest and taxes (EBIT) divided by Enterprise Value (EV). And instead of ROA, Greenblatt uses EBIT divided by tangible capital employed ("tangible capital employed" means net working capital plus net fixed assets). Companies that have the best combined rankings in EBIT/EV and EBIT/tangible capital employed are at the top of the magical formula investment rankings of companies.

The same reviewer complains that Greenblatt wasted some pages on inessential verbiage and could have compressed his whole message into an even smaller book. Well, there is something to that complaint, but the book is already very short and takes only about two hours to read as is. Even then, when I first picked it up, I found it easy to skim quickly through the entertaining chatty stuff and get to the beef, so it took me perhaps an hour to get through the book and get the gist. I am now rereading it carefully, since I plan to invest using its strategies, though first I intend to look for any expert critical reviews that may have been written of the book. But with people like Tobias strongly backing it, and Greenblatt's brilliant investment track record over the years, I'm gung ho at this point.

As a near novice in most things to do with the stock market, I've been on the lookout for a book that would provide a very simple overview and the best investment strategy. Having read Andrew Tobias' famous book, The Only Investment Guide You'll Ever Need, I was familiar with the idea that most ordinary investors should invest in the stock market as a whole, by investing in a no-load, broad-based index fund with a company like Vanguard. Tobias pointed out in the 2005 edition of his book that broadly based index funds tracking the market as a whole outperform 95% of stock managers, who rarely beat the market over the long term, but who charge significant fees, whereas many no-load broad-based index funds often charge very low fees.

But lo, now Tobias, treasurer of the Democratic Party, in the forward he has written to The Little Book That Beats the Market, has stopped singing the virtues of mere broad-based index funds, and has dropped his general skepticism about beating the market as a whole. Tobias tells us Greenblatt knows what he's talking about when Greenblatt claims there is a very easy way to strongly beat the market over the long term. Tobias in the forward to the book even urges Vanguard to set up a market-beating index fund based on Greenblatt's "magic formula," and writes that the next edition of The Only Investment Guide You'll Ever Need will steal very liberally from Greenblatt's Little Book That Beats the Market.

Greenblatt's book is so clear and easy that most teenagers can understand it. Greenblatt even has a website that allows one for free to instantly find, in terms of his magic formula, the top 25 and top 50 stocks out of some 3,500 on the market. He then has a very simple seven step system (requiring no stock research) showing you how, in a few minutes every few months, you should purchase and sell stocks, in order to get returns that very strongly beat the stock market as a whole. He also offers proof in the book that his magic formula works: he shows for example how using it over the 17 years from 1988 to 2004 would have provided returns of over 30 percent per year on average. If just any fool were pushing this strategy, I'd ignore it. But since Andrew Tobias is supporting it, and since Greenblatt himself has gotten 50% to 40% returns for many years, it looks like his presentation should be taken seriously.

I should comment on some details, which you won't need to understand to use Greenblatt's book. An earlier reader-review of the book mistakenly complains that Greenblatt's so-called magic formula merely considers price to earnings ratio (P/E) of companies and the return on assets (ROA) ratio of companies. But if that reviewer had read Greenblatt's book more carefully, he would have seen that Greenblatt's formula does not use P/E and ROA. Greenblatt uses earnings before interest and taxes (EBIT) on the one hand, and tangible capital employed (net working capital plus net fixed assets) on the other. Companies that have the best combined rankings in those two dimensions are at the top of the magical formula investment rankings of companies.

The same reviewer complains that Greenblatt wasted some pages on inessential verbiage and could have compressed his whole message into an even smaller book. Well, there is something to that complaint, but the book is already very short and it takes only about two hours to read as is. Even then, when I first picked it up, I found it easy to skim quickly through the entertaining chatty stuff and get to the beef, so it took me perhaps an hour to get through the book and get the gist. I am now rereading it carefully, since I plan to invest using its strategies, though first I intend to look for any expert critical reviews that may have been written of the book. But with people like Tobias strongly backing it, and Greenblatt's brilliant investment track record over the years, I'm gung ho at this point.

I found the book very condensate in content but very good getting the message thru. There are other investment books outside. For example the Portable Profesor of Peter Navarro. However this book offers a different, simple and effective explanation of how to invest.

Author Joel Greenblatt is one of the most successful hedge-fund managers in the history of Wall Street, but when he tried to write a guide for stock-market beginners (YOU CAN BE A STOCK MARKET GENIUS), the result flew over the heads of novices and instead became a favorite of his hedge-fund peers. That book is the best on the subject of investing I've ever read, but this time around, Mr. Greenblatt finds his original aim and delivers a wonderful tome for the beginning investor. The early chapters of the book in which stocks and the market are explained with real-world examples (a kid who sells bubble gum at school) merit five stars, but the book loses some ground when it goes into the infamous Magic Formula that Mr. Greenblatt has concocted. This is not to say that the Magic Formula may not be a great investing strategy, but people who want to actively manage their investments would be better off to follow the more adept advice in his earlier book.

I started following the value investing techniques promoted in this book a year ago and my portfolio so far is far trailing the market index. My negative experience aside, the book is a big disappointment, because the dozen or so chapters have little to do with how you can beat the market. Instead, some instructions, which direct you to his website, are left in the back pages. The main text is simply the author's attempt at writing a poorly written fairy tale. My other beef is the "real-world" results in the book aren't real trading results, but simulated numbers. As people with trading experience know, such results usually do not hold up at all in real-life trading, when you put real money (esp. your own money) on the line.

BTW, Greenblatt didn't make his 40% annual returns using this value investing approach preached in this book. Reports indicate he made money doing what hedge fund pros call "special situations" investing, which is discussed in his other book but is much harder (almost impossible?) for small investors to follow.

Easy reading and concepts....I did enjoy the book and would defiantly recommend it to a friend. He did seem to over state his philosophy throughout, but that is a good thing if you are a new investor trying to grasp the concepts like myself. It stimulates your mind and makes you think. So it's a good book to add to your collection.

"The Little Book That Beats the Market" is thoroughly enjoyable, light reading, but also delivers accurate advice on the time-tested value investing metrics. While the book does review the "magic formula" (return on capital, earnings yield) first advocated by Graham and Dodd, it is not a magic bullet or Holly Grail: you still have to do the work of screening for these qualities (a chore) and deciding on how often you will time and rebalance a portfolio of securities with these qualities (a rational schedule for market timing is not covered thoroughly). Greenblatt also warns that going the extra step of doing projected income statements and balance sheets will improve your expected returns, while emphasising that even without this step the magic formula works for the long holding period.

Greenblatt's narrative style and examples are filled with schmaltz and Borscht-belt shtick, but this is family friendly Catskills comedy that makes a point with the soft shoe transitions. Greenblatt's intention is for this to be family reading on wise investing, and for that alone he deserves six stars (and my heartfelt thanks). This is a wonderful book for teaching pre-teens and teenagers about money and investing and highly recommended.

This offers solid and easy to understand advice on investing. I have given 4 copies to family and friends after reading it.