📚The Little Book That Beats the Market — Joel Greenblatt

Hello everyone! Today, I'd like to introduce you to a well-known book in the investment world: "The Little Book That Beats the Market." Written by legendary investor Joel Greenblatt , it was first published in 2005 and subsequently released a revised edition in 2010. While the title may sound a bit pretentious, the content is incredibly simple and practical, and it has influenced countless investors, making it a classic investment guide for both beginners and practical investors.

🌟 Author background: Who is Joel Greenblatt?

• Investment legend : Greenblatt is the founder of Gotham Capital, a fund that achieved an average annual return of over 40% in just ten years, an astonishing achievement.
• Academic status : He is also a professor at Columbia Business School, teaching value investing courses and bringing practical experience into the academic world.
• Writing style : Unlike serious academic books on investment, his works are often explained in a light-hearted and humorous tone, making difficult financial concepts understandable to everyone.

📖 The meaning of the title

“The Little Book That Beats the Market” literally means “This little book beats the market.” Greenblatt wants to tell readers:
👉 Investing isn’t just for Wall Street elites; ordinary people can also achieve returns that exceed the market average in the long term by mastering simple rules.

🔑 Core content of the book (edited by the editor)

1. Magic Formula ✨

The most well-known part of this book is Greenblatt's "Magic Formula Investing." While seemingly simple, it combines value investing with quantitative thinking. The core idea of ​​the formula is:

• Buy good companies : Choose those companies that can make money efficiently and have high returns on capital.
• Buy at Bargain Prices : Even good companies should be bought when they are undervalued.

He used two main indicators as screening criteria:

1. Return on Capital (ROC) : Measures how efficiently a company uses its capital to make money.
2. Earnings Yield : An inverse indicator similar to the price-to-earnings ratio, used to determine whether a stock price is cheap.

Ranking all stocks based on these two indicators and then investing in companies with the highest overall rankings can beat the market in the long run.

2. Why does it work? 🤔

• Wall Street investors are often driven by emotions, chasing hot stocks or short-term performance.
• The magic formula forces investors to use "discipline" to screen stocks and avoid emotional interference.
• In the long run, good companies + cheap prices will almost certainly bring excess returns.

3. Investment steps 📝 (simplified version)

1. Use the magic formula to screen the top 20–30 companies every year.
2. Buy in batches and hold for about a year.
3. Review and adjust the portfolio regularly.
4. Repeat the operation and persist for a long time.

Greenblatt emphasizes that this approach isn't about getting rich in a year, but rather requires long-term patience .

4. Investment mentality

• Patience is key : Even if the formula is correct, it may still underperform in the short term.
• Avoid emotions : Investors often abandon their strategies due to short-term setbacks, which is the reason for failure.
• Long-term thinking : Investing is a marathon, not a sprint.

💡 Editor's opinion: The value of this book

• Easy to understand : The formula is explained through humorous stories, so even investment novices can understand it immediately.
• Actionability : Unlike some investment books that only talk about philosophy, The Magic Formula is a specific and executable strategy.
• Inspiration : It makes people understand that "discipline" is more important than "genius".
• Popularity : It has even been used to teach children how to invest. Greenblatt himself uses children as examples in his book.

🌍 What the investment community thinks of this book

• Many investors regard it as an "entry-level manual for value investing."
• Although the magic formula seems simple, it has been verified many times and has good results in different markets.
• Some people criticize it for being too mechanical and ignoring the details of industry analysis and company quality, but it is still very practical as an introductory strategy.

📌 Editor's Summary

"The Little Book That Beats the Market" is a truly "small but powerful" investment book:
👉 It tells us that investing doesn’t have to be complicated, and a simple formula can beat the market in the long run.
👉 It reminds us that the biggest enemy of investment is "one's own emotions and impatience."
👉 It inspires us that discipline and long-term persistence are more important than short-term smart operations.

My impression after reading this book is that it's like an "investment enlightenment fairy tale 📖✨," teaching us profound principles in the simplest of ways. While the formulas are simple, truly achieving long-term persistence is incredibly difficult.