thevicenarian.com

The Little Book That Beats the Market

Posted by Tad Johnson - Feb 18th, 2008 at 19:02

Joel Greenblatt makes a bold claim : using his simple stock picking strategy (referred to as the magic formula) you can beat the market average with less risk. In his own words,

I believe that using the magic formula and the principles behind the formula to guide your future investments will remain one of your very best investment alternatives. I believe that if you are able to stick with the magic formula strategy through good periods and bad, you will handily beat the market averages over time. In short, I believe that, even after everyone knows the magic formula, your results will continue to be not only “quite satisfactory,” but with a little luck, extraordinary.

Not surprisingly, this little book has caused a bit of a stir in the investment community since it was published a few years ago. A walk through Yahoo’s investment forums will yield an active community of magic formula practitioners. And I’m awfully tempted to become one myself.

I’m now on my second reading of the book, and the theories behind the magic formula are very enticing. Of course, the difference between writing about the book and actually investing real money is great. So far I haven’t done the later.

If nothing else, Greenblatt’s book is an entertaining (and brief) explanation of the basics of stock investing. I would highly recommend reading it.