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The Little Book That Still Beats the Market, by Joel Greenblatt
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Can you spare three hours to learn how to beat the market? As unlikely as it may seem, hedge fund manager and professor Joel Greenblatt, whose investment firm has averaged 40% annual returns for over twenty years, can teach you how. You can achieve investment returns that beat the pants off even the best investment professionals and the top academics. In fact, you can learn how it's possible to more than double the annual returns of the stock market averages.
But there's more. You can do it all by yourself. You can do it with low risk. You can do it without making any predictions, and you can do it by following, step by step, a time-tested, proven "magic formula" that uses only common sense and two simple concepts. Best of all, once you are convinced that it really works you can choose to do it for the rest of your life.
A runaway bestseller even before it was published, The Little Book That Beats the Market shows how successful investing can be made easy for investors of any age. It's never too early or too late to start investing, and with Greenblatt as your guide you'll know exactly where to go and what to do. By following the clearly outlined simple steps and magic formula, you can achieve extraordinary long-term investment results with a very low level of risk.
- Sales Rank: #8609 in Books
- Published on: 2010-09-07
- Original language: English
- Number of items: 1
- Dimensions: 7.30" h x .80" w x 5.30" l, .56 pounds
- Binding: Hardcover
- 208 pages
Amazon.com Review
In 2005, Joel Greenblatt published a book that is already considered one of the classics of finance literature. In The Little Book that Beats the Market—a New York Times bestseller with 300,000 copies in print—Greenblatt explained how investors can outperform the popular market averages by simply and systematically applying a formula that seeks out good businesses when they are available at bargain prices. Now, with a new Introduction and Afterword for 2010, The Little Book that Still Beats the Market updates and expands upon the research findings from the original book. Included are data and analysis covering the recent financial crisis and model performance through the end of 2009. In a straightforward and accessible style, the book explores the basic principles of successful stock market investing and then reveals the author’s time-tested formula that makes buying above average companies at below average prices automatic. Though the formula has been extensively tested and is a breakthrough in the academic and professional world, Greenblatt explains it using 6th grade math, plain language and humor. He shows how to use his method to beat both the market and professional managers by a wide margin. You’ll also learn why success eludes almost all individual and professional investors, and why the formula will continue to work even after everyone “knows” it.
While the formula may be simple, understanding why the formula works is the true key to success for investors. The book will take readers on a step-by-step journey so that they can learn the principles of value investing in a way that will provide them with a long term strategy that they can understand and stick with through both good and bad periods for the stock market.
As the Wall Street Journal stated about the original edition, “Mr. Greenblatt…says his goal was to provide advice that, while sophisticated, could be understood and followed by his five children, ages 6 to 15. They are in luck. His ‘Little Book’ is one of the best, clearest guides to value investing out there.”
An Exclusive Q&A with Author Joel Greenblatt It's been five years since you first published The Little Book That Beats the Market. Have your thoughts changed at all about the effectiveness of value investing?
In my mind, the principles of value investing have not changed. As we've learned yet again, markets can be volatile and emotional. They often go to extremes of pessimism and optimism, and prices can and often do fluctuate wildly and significantly over short periods of time. As a result, Mr. Market can provide some excellent opportunities to purchase bargain priced stocks when people are unduly pessimistic. This is where value investing comes in. Buying companies below their true value is the road to being a successful investor. The magic formula found in the Little Book seeks to buy a group of above average companies but only when they are available at below average prices. Because it is a formula, it seeks to do this in an unemotional way that can take advantage of the market's mood swings. Ben Graham taught us these lessons in the 1930s and the principles still hold as well today as when he first wrote them down more than 70 years ago.
Do you think individual investors should re-think their investment strategy as a result of the recent market crash and recession?
I think the best lesson that can be learned from the recent price drop and partial recovery is that stocks are volatile. For most people, stocks should represent a portion of their investment portfolio because I still believe that over the long term they will provide superior returns relative to most alternative investments. However, whether that portion of an investment portfolio devoted to stock investments should be 40% of an investor's portfolio or 80% is a very individual decision. How much are you willing (or able) to lose before you panic out? There's no sense investing such a large portion of your assets in a long-term strategy if you can't take the pain when your chosen strategy doesn't work out for a period of years. The "magic formula" found in the book can underperform the market for years. It can also lose money if the market goes down. But it is also a strategy that makes a lot of sense and that should work well for investors over the long term.
Can you explain the Magic Formula's basic strategy in one sentence?
The Magic Formula strategy is a long-term investment strategy designed to help investors buy a group of above-average companies but only when they are available at below-average prices.
You make reference in the new afterword to receiving a number of emails from readers after the The Little Book That Beats the Market was published. Could you share with us some of the comments you received?
I received many emails after the first edition of the book was published. Some suggested that the strategy was working great for them while others reported that they had waited over a year and the strategy was underperforming. These results and emails are consistent with the message of the book. Over the five years since the book was published, the strategy earned very nice returns for investors, but the ride was bumpy. Not only did the formula underperform for a period of time, in 2008 it lost money along with the market. Overall, the formula performed quite well but only for those who maintained a true long-term perspective. This is easier said than done. In the new afterword, I try to give more facts, color and information about the strategy that I hope will help investors be successful in taking full advantage of the magic formula over the long term. Of course, I also got plenty of emails where investors just asked us to do it all for them. Other emails asked us to apply the formula internationally. As a result, we have worked on both of these projects over the last several years.
In the new afterword, you write "Beating the market isn't the same thing as making money." Can you elaborate on this and why it's a difficult concept to swallow at times?
Since the strategy involves buying a portfolio that is 100% long the stock market, if the stock market goes down, our portfolio may well go down, too. If the market drops 40% and we beat the market by losing only 38%, this is small consolation. As I say in the afterword, while I firmly believe that for most people an investment in the stock market should represent a substantial portion of your investment portfolio, how big that portion should be can vary widely. For some it can be well over half of assets, for others well less than half might be appropriate. The magic formula strategy is a wonderful strategy for that portion of your portfolio that you choose to invest in the stock market. In fact, I truly believe that the magic formula remains one of your best options. How much to invest in the stock market, however, is a very personal decision that should be partially based on your ability to withstand short-term negative price movements. One encouraging fact, though, discussed in the afterword is the performance of our large cap portfolio over the last decade. Over that period, the market as measured by the S&P 500 was actually down, yet our backtests showed that following the formula over those same ten years would have resulted in a more than tripling of your money. Unfortunately, those great long-term returns came with plenty of bumps, including some not so short periods of losses and underperformance. But once again, if the formula worked every day, every month and every year, everyone would follow it and it would be ruined. Fortunately, it's not so great, and as a result I strongly believe that long-term investors should continue to benefit from the magic formula for many years to come.
From Publishers Weekly
Contrary to efficient-market naysayers, this engaging investment primer contends that ordinary stock-market investors can indeed get better-than-market returns over the long haul. Greenblatt (You Can Be a Stock Market Genius), a Columbia Business School adjunct professor, touts a "value-oriented" approach that looks for bargain stocks whose share price is cheap relative to the company's profitability. His version is a "magic formula" that ranks stocks on the basis of two variables—the earnings yield and the business's return on capital. His Web site, magicformulainvesting.com, virtually automates the procedure for novices. Greenblatt offers lots of statistical proof of the formula's success, but emphasizes the importance of faith in seeing the investor through inevitable short-term downturns: "It will be your belief in the overwhelming logic of the magic formula that will make the formula work for you in the long run." He conveys his ideas through a lucid if rudimentary and rather corny explanation of basic investment concepts about risk, return, interest and business valuation. Although the fabulous returns he touts seem too good to be true, Greenblatt's formula is a reasonable variant of mainstream value-investing methods. Investors seeking a little more hands-on excitement than the average mutual fund offers won't go too far wrong following his advice. (Jan.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
Review
"...a sharply written, anecdote-rich, easy to understand investing strategy". (Wall Street Journal, August 7, 2006)
"...a rare worthy edition to humanity's investing know-how". (SmartMoney, May 5, 2006)
There's certainly no dearth of advice on investment. The best-seller lists are full of books on how to be a successful investor "in only 15 minutes a week", on how to become an "automatic" millionaire, and about how to invest if you're "young, fabulous and broke".
The best book on the subject in years is value investor Joel Greenblatt's The Little Book That Beats the Market, which is still a top seller months after its release. Beyond the credibility that comes from someone whose private investment partnership, Gotham Capital, has produced 40 per cent a year returns over the past 20 years, Mr Greenblatt brings an elegant and simple writing style to what can be a complicated subject.
He outlines a "magic formula", based on how he invests, that anyone can use. The formula has only two inputs, a company's earnings yield and its return on capital. The rationale is straightforward: buy shares in good businesses, measured by returns on capital, only when they're available at bargain prices, defined as a high earnings yield.
The magic formula looks for companies that have the best combination of earnings yield and return on capital, with each input weighed equally. An outstanding company with an expensive stock ranked, say, first for return on capital but 1,999th on earnings yield, would have the same combined ranking of 2,000 as a low return on capital company within expensively priced shares, ranking 1,999th in return on capital but first on earnings yield.
Using this approach to create a regularly updated portfolio of about 30 stocks with the highest combined rankings, Mr Greenblatt tested his formula between 1988 and 2004. The results were remarkable: with only one down year, the magic portfolio would have returned 30.8 per cent a year, against a 12.4 percent annual return for the S&P 500.
Rather than using the latest 12 months' earnings to calculate earnings yield and return on capital, Mr Greenblatt and his analysts try to improve on the rote application of this formula by using earnings estimates in a "normal" year, one in which nothing unusual is happening within the company, its industry or the overall economy.
Mr Greenblatt has created a free website for screening stocks based on his approach (www.magicformulainvesting.com). In a recent screen I carried out on the site of the top 100 magic formula companies with market capitalizations above Dollars 2bn, the top 10companies ranked by market cap were Exxon Mobil (XOM), Microsoft (MSFT), Pfizer (PFE), Johnson & Johnson (JNJ), IBM (IBM), Intel (INTC), Conoco Phillips (COP), Dell (DELL), 3M (MMM) and Motorola (MOT). Now that's an impressive group of companies.
I own one of them(Microsoft) in my portfolio. Given how sceptical I am about the tech sector, owning this is a real leap for me but this is a fantastic business and the stock is attractively priced. Microsoft has a dominant franchise, some of the most jaw-dropping economic characteristics ever achieved, capable, honest, shareholder-friendly management, and unlike most technology companies, reasonably predictable future prospects.
I am optimistic about Microsoft's future prospects for a number of reasons. The company will be releasing in the next year significant upgrades of its two cash cows, Windows and Office. Historically, these events have been big and highly profitable events for Microsoft.
Yes, Microsoft's days of ultra-high growth are over, inevitable for a company with Dollars 40bn in annual revenues. But it is highly likely the company will grow substantially faster than the S&P 500 for many years to come and that its fabulous economic characteristics will remain largely intact.
At a recent price of Dollars 27, Microsoft, after adjusting for the company's cash hoard, is trading at under 17 times earnings estimates for this calendar year.
I don't claim this is screaming cheap but it is close to the lowest p/e multiple the stock has ever traded at and is, I believe, an attractive price for a company of its quality and bright future.
You might wonder if Mr Greenblatt is concerned that popularising his strategy will mean it will stop working. "Traditional value investing strategies have worked for years and years and everyone's known about them," he says. "They continue to work because it is hard for people to do, for two main reasons. First, the companies that show up on the screens can be scary and not doing so well, so people find them difficult to buy.
Second, there can be one-, two- or three-year periods when a strategy such as this doesn't work. Most people aren't capable of sticking it out through that."—Whitney Tilson is a money manager who co-edits Value Investor Insight and co-founded the Value Investing Congress. (Financial Times, April 24, 2006)
"...an entertaining two-hour read" (Daily Telegraph, April 2006)
"...the book unquestionably makes good on its promises." (SmartMoney, March 2006)
Joel Greenblatt's The Little Book That Beats the Market is pitched not to the swells of Wall Street but to the novice individual investor.
Greenblatt, the founder of hedge fund firm Gotham Capital, has taken what he has learned about investing and written this skinny, pocket-size book.
His goal: to explain how to make money in terms that even his five kids could understand. "I figured if I could teach them how to make money for themselves, then I would be giving them a great gift."
Greenblatt, a Columbia Business School professor and an investor for 25 years, says, "I believe I can teach you (and each of my children) to be one of them" — meaning, a successful investor.
The Little Book That Beats the Market is simple and sincere; Andrew Tobias, author of The Only Investment Guide You'll Ever Need, writes the introduction.
The formula works if you have faith and are patient enough to follow his guidance — over time, Greenblatt says.
Greenblatt's formula is based on Warren Buffett's investment principles: Invest in good companies when they are cheap.
According to Greenblatt, his formula historically has beaten the market for nearly two decades. Although he does not name the stocks, he claims that from 1988 through 2004, the high-return/low-price stocks of 30 of the largest 2,500 companies had returns of 22.9% annually.
Simple enough. But how do you find these stocks? "The truth is you don't need an MBA to beat the market," he writes.
But there's no fairy godmother on Wall Street. "If your stockbroker is like the vast majority, he or she has no idea how to help you! They don't get paid to make you money. The plain fact is you are on your own." That said, you have no business investing in individual stocks on your own, he says.
His magic formula promise: "If you just stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield), you can achieve investment returns that beat the pants off even the best investment professionals."
He has a free (for now) website, www.magicformulainvesting.com, which screens companies using his criteria. He advises individual investors to buy a basket of 20 or 30 top stocks over the course of a year and turn them over on a strict schedule, depending on how they perform. He does not mention a minimum amount to invest.
Be forewarned, though. The formula may or may not work over "shorter" periods, which can often mean years, not days or months. Good things come to those who wait and, in this case, Greenblatt means that it takes three, four or even five years to show its stuff. After a year or two of performing worse than the market averages, most people won't stick with it. But you've got to "really believe in it deep down in your bones."
Even if you don't drink the Kool-Aid, you will learn about the technique of value investing from a pro. Greenblatt boils investment jargon down to what you need to know as succinctly and humorously as possible. Along the way — and it won't take you more than two hours tops — you're given a tutorial on bonds, stock shares and prices, earnings yields, return on capital and more. The appendix, which is "not required reading," adds a more detailed, strategic commentary.
It might be hard for less-schooled investors to understand why the "magic" formula makes sense and to stay with it when things get bleak, but the hard part is just getting started, he counsels. That's true for investing, period. (USA Today, January 16, 2006)
“Greenblatt delivers admirably…it contains one of the clearest, most entertaining explanations you’ll ever see of the ideas underlying value investing.” (International Herald Tribune, 16th January 2006)
Hedge fund manager and Columbia University business school professor Joel Greenblatt has written a delightful volume called The Little Book that Beats the Market (Wiley) that anyone who takes his personal investing seriously should read. Greenblatt starts his slim volume with an uncommonly elegant explanation -- written for his children -- of how to value stocks. He argues that any investor can achieve higher-than-average returns by investing solely in companies with a high earnings yield and high return on equity. The book's biggest flaw is Greenblatt's use of cute, over-hyped language. He calls his approach to stock picking a "magic formula" and acts certain his strategy will continue to beat the market even now that everybody knows about it. (The Washington Post, December 25, 2005)
“a marvellously clear explanation of the value investing approach” (Financial Times (also on FinancialNetnews.com) 10th December 2005)
“The book is certainly written simply and the concepts are conveyed compelling” (Daily Telegraph, 29th November 2005)
Contrary to efficient-market naysayers, this engaging investment primer contends that ordinary stock-market investors can indeed get better-than-market returns over the long haul. Greenblatt (You Can Be a Stock Market Genius), a Columbia Business School adjunct professor, touts a "value-oriented" approach that looks for bargain stocks whose share price is cheap relative to the company's profitability. His version is a "magic formula" that ranks stocks on the basis of two variables—the earnings yield and the business's return on capital. His Web site, magicformulainvesting.com, virtually automates the procedure for novices. Greenblatt offers lots of statistical proof of the formula's success, but emphasizes the importance of faith in seeing the investor through inevitable short-term downturns: "It will be your belief in the overwhelming logic of the magic formula that will make the formula work for you in the long run." He conveys his ideas through a lucid if rudimentary and rather corny explanation of basic investment concepts about risk, return, interest and business valuation. Although the fabulous returns he touts seem too good to be true, Greenblatt's formula is a reasonable variant of mainstream value-investing methods. Investors seeking a little more hands-on excitement than the average mutual fund offers won't go too far wrong following his advice. (Jan.) (Publishers Weekly, November 14, 2006)
"The Little Book is one of the best, clearest guides to value investing out there." (The Wall Street Journal, November 9, 2005)
"...the best book on the subject in years." (Financial Times, May 2006)
"Mr Greenblatt's system is elegant, simple and, on the face of it, very successful." (Investors Chronicle, May 2006)
"…worth a look." (The Business Supplement, September 2006)
Most helpful customer reviews
410 of 446 people found the following review helpful.
Excellent! A Must Read for Every Investor
By Value Investor
As a portfolio manager at a large New York based hedge fund I have read more investment books than I care to admit. With that being said, The Little Book That Beat the Market is the first book I have felt compelled to review on Amazon (of course, I am not really going out on a limb recommending a book that legendary investor Michael Price describes as "One of the most important investment books of the last 50 years.")
Professor Greenblatt's first book, You Can Be a Stock Market Genius, is widely regarded as the seminal text on special situations investing and the strategies contained in the book are employed by multiple hedge funds and investment professional. While I recommend Stock Market Genius to anyone who has the time and desire to analyze stocks in detail (at least 3 hours a week) I highly recommend The Little Book That Beat the Market to ALL investors of ALL ages and to ANYONE who wants to understand how businesses create value.
The beauty of the Little Book is a follows:
1) It is simple
2) It works
3) Most investment professionals cannot follow the Little Book's strategy and that makes this strategy one of the only instances where small investors have a HUGE advantage over professionals.
4) The people who have recommended this book are some of the most successful investors in the history of Wall Street (myself excluded, maybe someday!)
1) It is Simple
While some of the reviews on Amazon have argued that the Little Book is too simply, I completely disagree. The reason this book is great is that it takes a very complicated subject matter (investment success) and makes it simple and easy to understand. Bottom line, I don't really care if something is difficult or easy, if I can use it to make money I like it. The fact that the Little Book works AND it is easy, is really the best of both worlds.
2) It Works
The actual results of the Little Book describe in the book are astonishing. While I agree with others that reproducing the exact results of Professor Greenblatt's study is difficult for non-professionals, using Compustats real-time database gets remarkably close to the results described in the book and detailed on his web site.
However, what I find to be more valuable than the results themselves is Professor Greenblatt's explanation on why the formula works. Yes, everyone wants to buy cheap stocks but understanding how to distinguish between which cheap stocks are just cheap and which are good businesses worth owning is critical to investment success. While these concepts might not be entirely new (Warren Buffett writes about them annually), never before have I seen them described so completely and simply in one place.
3) Most Professionals Can't Follow Strategy
Most investors (especially hedge funds) are monitored closely on yearly, quarterly and monthly performance. For a hedge fund, having stable monthly numbers is considered critical to attracting new capital and preventing redemptions. Despite the fact that the Magic Formula has excellent long-term performance (30% annually over 17 years) the monthly volatility (down 5 out of every 12 months on average) makes it impossible for most hedge funds and professional investors to follow strictly without fear of investor redemptions. As a hedge fund manager I plan on incorporating the concepts of the Little Book into my investing but I am establishing a fund for my children that will invest strictly based on Professor Greenblatt's Magic Formula.
4) Recommended by Highly Successful Investors
As I stated above, I am not really putting myself out on a limb recommending a book written by Professor Greenblatt (his 20 year track record of 40% annual returns speaks for itself) and endorsed by Michael Price, Andrew Tobias, Professor Bruce Greenwald, Michael Steinhardt, the Wall Street Journal and the Financial Times.
With that being said, I highly recommend The Little Book that Beat the Market and believe it is a great read for anyone interested in investing and business. FYI, other investing books I highly recommend are The Essays of Warren Buffett: Lessons for Corporate America edited by Lawrence Cunningham; The Intelligent Investor, by Benjamin Graham; Margin of Safety by Seth A. Klarman; Value Investing with the Masters by Kirk Kazanjian and Money Ball by Michael Lewis.
106 of 113 people found the following review helpful.
Has Greenblatt discovered a "magic formula"?
By Andrew Szabo
Joel Greenblatt's Little Book That Beats the Market (John Wiley, just released; $19.95), offers what the author says is a "magic formula" for success in the stock market. Such a phrase may arouse your skepticism, as it did mine, but let's look into the claim.
Joel Greenblatt founded and is a managing partner of Gotham Capital, a hedge fund that, according to reports, achieved a 50% annualized return [before payment of an incentive allocation] during the ten years (1985-1995) that it was open to outside investors. This kind of record certainly merits attention. Greenblatt, it's safe to say, has gotten rich.
Greenblatt's formula is based on only two measures: earnings yield and return on capital. These numbers are not hard to obtain. Greenblatt defines earnings yield as EBIT (earnings before interest and taxes) divided by enterprise value. Enterprise value equals a company's stock market capitalization plus debt plus preferred shares minus cash and cash equivalents on the balance sheet. Return on capital he defines as EBIT divided by the sum of net fixed assets (total assets minus depreciation to date) plus net working capital (current assets minus current liabilities).
One weakness of Greenblatt's presentation is the use of earnings as a measure. I prefer to look at a company's free cash flow (after subtraction of capital expenditures) rather than EBIT. Earnings are susceptible to a greater degree of manipulation than cash flow.
Second, the book does little to elucidate the qualitative measures that go into Greenblatt's investment process. Which businesses have a sustainable advantage? How do you identify growth? On the other hand, Greenblatt lays out a testable hypothesis--a real merit.
If you are interested in pursuing Greenblatt's idea's further, I recommend you visit his Website on MagicFormulaInvesting. At that site, you define a minimum capitalization size and a target number of stocks for your portfolio. The magic formula spits out a suggested investment set. A good number of the selections at present are in the areas of pharmaceuticals and technology.
Greenblatt presents some impressive numbers illustrating the back-tested historical results of his approach. These are, as the saying goes, no guarantee of future performance. The more money that follows Greenblatt's approach, the less it will return, over time. However, since Greenblatt's approach has a rational basis, you might also see a more rational allocation of capital to investments, which could reduce their volatility. By the same token, one rarely sees bargains anymore of the sort that Benjamin Graham outlined in Security Analysis (1st ed., 1934)--whereby companies could be bought for less than their net current assets--and the market is better for it. In that sense, financial theory is right in predicating that there is no "money machine" that markets--that is to say, competing investors--will not seek to arbitrage away.
(The author of this review, Andy Szabo, is founder of MindBodyForce.com)
376 of 417 people found the following review helpful.
An Easy Quick Read, Some Good Points, Some Big Problems
By Mark Gordon
I won't repeat what other reviewers have said. This book is a quick read, with a breezy tone, and in some simple ways helps to explain value investing, but...
A few problems that the author dismisses without any discussion.
1. Backtesting. Most backtested stock market systems don't work in the forward direction for very long. A good example is the Motley Fool's Foolish Four model, based on the Dow Dividend model. Backtested it looked great! But when a large number of people started to follow the model, it's performance approached mediocre. This makes sense. Wall Street is nothing but efficient. Any strategy that works will quickly be copied by tens of thousands of players, and this can quickly ruin a system. That's why hedge funds that use "black box" models don't publish the models.
And since Greenblatt tells the reader that the system only works over a three year period, it would be at least three years before one could tell the system wasn't working.
I would predict that the system will produce diminishing returns over the next ten years, proportionate to how many copies of the book that the author sells. Ironic that the richer that Greenblatt gets, the poorer his followers will get.
2. Trading costs: Greenblatt completely ignores trading costs and taxes in his analysis. If you follow his advice and buy 30 stocks, you would pay $779 in round-trip commissions at E-trade (or $600 if you had more than $50,000). That's about 1.5% a year in trading costs on $50,000 invested, or about 3% a year on $25,000. Or almost 8% on $10,000! That's a big expense drag, especially if the system doesn't outperform by as much as it claims to.
And taxes. If you do this strategy in a taxable account, you would incur another 15% to 25% hit in the form of capital gains taxes and state taxes, depending where you live. Thus the cost of the strategy could add up to as much as 33% a year in a state like New York or California. Again, very hard to make money this way, unless the strategy beats the market by 100% as it claims. (Of course, in a tax-deferred retirement account, this would not be a problem.)
The alternative, investing and holding a diversified by asset type group of index funds, would have a yearly cost of less than 0.3 % a year, and would generate little or no taxes until sold many years later.
3. Being hostage to his website, which is carefully labeled "free for now." Because his formulas don't translate well to free financial sites, the user of this system will have to depend on the generosity and fairness of the author. What if you start to use them system, and two years from now the site becomes an expensive pay site? That just adds another expense, and each expense becomes a drag on performance.
4. Dubious endorsements. So what if the publishers got rave reviews from famous investors? This doesn't mean that the book has any merit. I'd like to ask each of those investors if they plan on replacing their own investing style with the author's system.
5. No analysis of risk-adjusted returns. A basic principle of investing is that you get paid for risk taken. Thus small stocks, which are riskier, tend to return more over time. Riskless assets such as treasury bill will tend to yield low returns.
I'd like to see risk-adjusted performance data. For instance, what is the Sharpe ratio of the stocks picked by his system? What are the standard deviations? What are the beta's? If the system really is good, then it should look good on a risk-adjusted basis. The interested reader might want to take a look at William Bernstein's excellent The Four Pillars of Investing : Lessons for Building a Winning Portfolio if they want a thorough understanding of risk and return.
I'd also like to see a better attitude from Mr. Greenblatt on his website. Amazon reviewers are a serious, thoughtful group for the most part, and perhaps responding to some of the issues raised in an open way would help readers and potential readers of his book to understand it better.
I guess I'd like to conclude by reminding everyone of the standard investment disclaimer..."Past performance does not guarantee future performance in any way."
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