Tuesday, November 22, 2005

Greenblatt's Magic Formula

I just finished reading Joel Greenblatt's recently published book "The Little Book That Beats the Market." The essential idea behind Greenblatt's investment process is simple: own companies that have high earnings yields and high returns on capital. He calls this his "magic formula." In fact, there is nothing magical about his formula. It simply instructs investors to buy attractive businesses (i.e., those with high returns) at great prices. That is, of course,what all great investors do, including Warren Buffett and Charlie Munger.

While many professional investors may view Greenblatt's process as too quantitative and mechanical, I like the fact that it is disciplined and based on sound fundamental financial concepts (e.g., returns on capital and earnings yields).

If you are a day trader and you are reading this blog, you might want to do yourself a favor and pick up Greenblatt's book. You'll make a heck of a lot more money following Greenblatt's advice than you will watching CNBC and trying to trade every little wiggle in the market. Furthermore, you'll have lots of free time on your hands to read great books and acquire worldy wisdom.

2 Comments:

Blogger Hendrik Oude Nijhuis said...

Hi,

I have read hundreds of books on value investing, Warren Buffett etc, and publish investment tutorials on value investing myself. I highly recommend Greenblatt’s ‘the little book that beats the market’. It could be one of your best investments ever!

A few weeks back I wrote an article on Greenblatt’s results on Gurufocus.com: http://www.gurufocus.com/news.php?id=3978

Success in investing,
Hendrik Oude Nijhuis
www.magicformulastocks.com

5:11 PM  
Blogger lijialefw said...

Why was there no follow on bankruptcy then? The bailout of AIG FP went to (wow power leveling) hedge funds that bound credit swaps on Lehman failing or others betting on rating (wow power leveling) declines. AIG has drained over 100 billion from the government. Which had to go to (wow power leveling) those who bet on failures and downgrades. Many of whom (power leveling)were hedge funds. I-banks that had offsetting swaps needed the money from the AIG bailout or they would have been caught. Its an (wow powerleveling) insiders game and it takes just a little bit too much time for most people to think (wow gold) through where the AIG 100 billion bailout money went to, hedge funds and players, many of whom hire from the top ranks of DOJ, Fed, Treasury, CAOBO

2:19 AM  

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