The Little Book That Beats the Market (Joel Greenblatt)

Trader's Library #70 · Investing and the stock market. A simple formula and an even more important lesson about patience.

Author: Joel Greenblatt · Original: The Little Book That Beats the Market; The Little Book That Still Beats the Market · Year: 2005 · Usefulness for traders: ★★★☆☆

What it's about

A simple book about the “magic formula”: buying good companies (high return on capital) at a low price (high earnings yield). The book has two editions: the original and an updated one. Greenblatt explains it so simply that a teenager could understand it.

What it gives a trader

The most important lesson isn't about the formula but about psychology: a strategy with an edge can underperform the market for several years, and that's exactly why most people abandon it. Every trader knows this from drawdowns.

Lessons for traders

• an edge works over the long run and can fail in the short run
• most people abandon a good strategy during a bad stretch (recency bias, Atlas of biases #24)
• simple doesn't mean easy to execute

What to watch out for

The formula's results after the book was published were weaker than in the historical tests.

Discussion

The discussion takes place in Hetman Capital Club (in Polish). Join the discussion in the Club →

Navigation

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Educational content, not investment advice. The book description is my own summary and assessment, not quotations. Edition details were checked in catalogues and bookshops, and where there was doubt I said so plainly.