The Little Book That Surprised Me
Joel Greenblatt, hedge fund manager and professor at the Columbia Business School, recently published a short book about a value investing strategy that even teenagers can understand without any prior knowledge of finance, technical analysis, or the stock market.
The book is called: The Little Book That Beats The Market
.
I'm surprised at the elegant simplicity of the book and the apparent success of the "magic formula" that Greenblatt explains. The formula is not a complicated multi-factor finance model but rather a three step process of ranking all the stocks by size and then by two fundamental ratios based on traditional value investing principles. The book is funny, light-hearted, and really easy to read. It would make a great gift for any young person who wants to learn how to invest or who just doesn't know what to do with extra investment money.
The Little Book That Beats The Market
is not just for greenhorns: For experienced investors Greenblatt includes all the details of his study's methodology in the appendix. For me, the appendix helped because throughout the beginning of the book I remained skeptical until he explained the details of how he constructed the "magic formula's" database and how he dealt with typical data mining issues such as survivorship bias and look-ahead bias.
After being convinced that the strategy probably works at least moderately well over a long period of time (it is NOT a short-term trading strategy), I decided to check out the book's website that provides current rankings for the "magic formula." The book contains the extremely simple instructions on how to use the formula to actually beat the market over a long period of time.
Overall, the book (and accompanying website) were well worth the money. I highly recommend it to anyone interesting in investing. Those interested in value investing should also check out the classic value investing bible The Intelligent Investor and perhaps The Little Book of Value Investing as recently reviewed by experiglot.com.
Paul
The book is called: The Little Book That Beats The Market
.I'm surprised at the elegant simplicity of the book and the apparent success of the "magic formula" that Greenblatt explains. The formula is not a complicated multi-factor finance model but rather a three step process of ranking all the stocks by size and then by two fundamental ratios based on traditional value investing principles. The book is funny, light-hearted, and really easy to read. It would make a great gift for any young person who wants to learn how to invest or who just doesn't know what to do with extra investment money.
The Little Book That Beats The Market
is not just for greenhorns: For experienced investors Greenblatt includes all the details of his study's methodology in the appendix. For me, the appendix helped because throughout the beginning of the book I remained skeptical until he explained the details of how he constructed the "magic formula's" database and how he dealt with typical data mining issues such as survivorship bias and look-ahead bias.After being convinced that the strategy probably works at least moderately well over a long period of time (it is NOT a short-term trading strategy), I decided to check out the book's website that provides current rankings for the "magic formula." The book contains the extremely simple instructions on how to use the formula to actually beat the market over a long period of time.
Overall, the book (and accompanying website) were well worth the money. I highly recommend it to anyone interesting in investing. Those interested in value investing should also check out the classic value investing bible The Intelligent Investor and perhaps The Little Book of Value Investing as recently reviewed by experiglot.com.
Paul
posted by Traders Edge Systems at 1:43 AM
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