On Jul 24, 12:21 pm, "O-PGManager" <ad63...
> On Jul 24 2012 1:12 PM, ramashiva wrote:
> > On Jul 24, 9:59 am, "O-PGManager" <ad63...@webnntp.invalid> wrote:
> > > On Jul 24 2012 4:29 AM, ramashiva wrote:
> > > > I want to get exact numbers nailed down, so there can be no dispute in
> > > > the future. One of the reasons I am doing this is to dispel the myth
> > > > that the individual investor can't do better than the market
> > > > averages.
> > > Can't do better "on average". There will always be exceptions.
> Of course you "can". Everyone "can" beat the house at blackjack too. The
> question is for how long?
No, Opie. Stop showing your ignorance. Everyone can't beat 21. Most
experienced card counters can't beat the game. Why? There are
several reasons --
Because they are undercapitalized and eventually get wiped out by a
bad losing streak.
Because they have no emotional control, and they lose it when the
cards run against them.
Because they are being cheated by a seconds dealer or a bottoms
Some people beat the market over extended periods, not because they
are lucky, but because they know what they are doing.
Did you read Mo Ron's link upthread?
Here is the Amazon review --
Two years in MBA school won't teach you how to double the market's
return. Two hours with The Little Book That Beats the Market will.
In The Little Book, Joel Greenblatt, Founder and Managing Partner at
Gotham Capital (with average annualized returns of 40% for over 20
years), does more than simply set out the basic principles for
successful stock market investing. He provides a "magic formula" that
is easy to use and makes buying good companies at bargain 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. You'll
learn how to use this low risk method to beat the market and
professional managers by a wide margin. You'll also learn how to view
the stock market, why success eludes almost all individual and
professional investors, and why the formula will continue to work even
after everyone "knows" it.
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
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
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
read more »