Summary
Joel Greenblatt’s The Little Book That Beats the Market explains the “Magic Formula”, a simple, disciplined investing strategy that ranks stocks by high earnings yield and high return on capital. By buying good companies at bargain prices and holding long term, investors can outperform the market through patience and consistency.
Ratings
Quote
Although over the short term, Mr. Market may set stock prices based on emotion, over the long term, it is the value of the company that becomes most important.
Learnings
- Good companies + good prices win: Superior returns come from buying high-quality businesses at attractive prices, not from speculation or hype.
- The Magic Formula simplifies investing: Return on Capital and Earnings Yield is enough to find strong candidates.
- Cheap stocks outperform in the long run: Buying companies priced below intrinsic value creates a margin of safety and boosts long-term returns.
Review
The Little Book That Beats the Market is one of the most practical investing books I’ve read. It strips away noise and emotions, replacing them with a clear, disciplined framework. The Magic Formula is simple yet powerful, making long-term value investing feel logical, repeatable and achievable.
Audience
- Beginner Investors: People new to investing who want a clear, rule-based approach without complex finance theory.
- Retail Investors: Long-term investors managing their own portfolios and looking for a disciplined strategy.
- Value Investing Enthusiasts: Readers interested in classic value principles but presented in a modern, systematic way.