The Little Book That Still Beats the Market Joel Greenblatt Investment Strategy

Joel Greenblatt's investment strategy is outlined in his book "The Little Book That Still Beats the Market." This book provides a straightforward approach to investing in the stock market.

The strategy focuses on buying companies with high return on equity (ROE) and low price-to-book (P/B) ratios. Greenblatt's approach is built on the idea that companies with high ROE and low P/B ratios are more likely to deliver strong returns.

The strategy involves identifying companies with a high ROE, which is calculated by dividing net income by shareholder equity. Greenblatt looks for companies with an ROE of 25% or higher.

By focusing on companies with high ROE and low P/B ratios, Greenblatt's strategy aims to identify undervalued companies with strong potential for growth.

The Magic Formula is a simple yet effective way to identify good companies at good prices. It's a two-part formula that combines Return on Invested Capital (ROIC) and Earnings Yield.

ROIC represents a good company, telling you how much cash a company generates in relation to the capital tied up in its business. As ROIC numbers increase, a business gets better and better.

Earnings Yield represents a good price, telling you how expensive a company is in relation to its earnings. We make adjustments to a company's market capitalization to estimate what it would take to buy the entire company.

The Magic Formula gives these two ratios equal weight when selecting investments. Each company's ROIC and Earnings Yield ranks are added together to determine the best combined rankings.

This approach is sound and simple, making it a great resource for anyone looking to learn about investing or manage their own equity portfolio.

Joel Greenblatt's book, "The Little Book That Beats the Market", has been widely recognized for its investment strategy.

He has been featured in Barron's, where he explained how he beats the market.

Greenblatt's Magic Formula Investing has been covered in an NPR article.

CNBC has a video of Greenblatt discussing his investment approach.

The book has been praised by Forbes, which featured an interview with Greenblatt.

Joel Greenblatt is often compared to Benjamin Graham, a legendary investor, as highlighted in a Seeking Alpha article.

Greenblatt has also been interviewed in the "Graham & Doddsville Newsletter" from Columbia Business School.

In The Little Book, Joel Greenblatt warns that profitability is sometimes forsaken for potential. After the post-2008 tech boom, many investors became obsessed with finding a unicorn; they started betting on potential instead of profit.

Greenblatt emphasizes the importance of ignoring the hype and instead focusing on high earnings yields and high returns – according to him, the most crucial indicators for long-term success. He believes that by consistently applying principles that mitigate the emotional aspects of investing, investors can outshine even the most seasoned professionals.

Fundamental analysis involves studying a company's economic and financial information, as well as other factors related to the company and its industry, to find and invest in those that are undervalued. Typically, this is done by analyzing the financial statements of the company and making an informed decision based on that data.

Greenblatt stresses that fundamental analysis is crucial, particularly when employing his Magic Formula and focusing on long-term investing. Many studies over the years have confirmed that value-oriented strategies beat the market over longer time horizons.

The Magic Formula, which ranks companies by their Return on Invested Capital (ROIC) and Earnings Yield, gives equal weight to both ratios when selecting investments. This approach is sound and simple enough that when someone wants to learn about investing or is considering managing his own equity portfolio, we strongly encourage him to read Greenblatt's book.

Joel Greenblatt's book is a valuable resource for investors of all levels.

The book provides a clear and systematic approach to value investing through the Magic Formula, making it accessible to both novices and experienced investors.

Whether you're just starting out or looking for a disciplined strategy to improve your investment game, Greenblatt's insights are a great place to start.

Greenblatt emphasizes the importance of long-term success, which is a refreshing change from the get-rich-quick schemes often touted in the investment world.

His book is a valuable addition to any investment library, and its principles can be applied to a wide range of investment scenarios.