Book Review: The Book That Beats The Market

I had heard of this book but was not convinced enough to purchase it, my preference being for one of the other little books, "The Little Book of Value Investing". However, the comment on the flip cover, "... at Gotham Capital (with average annualized returns of 40% for over twenty years) ..." aroused my interest. And thus, it became a part of my library.

The book is written in a simple way that even a layman can understand. Afterall, the author's intent is to explain how to make money in terms that even (my) kids could understand.

The Contents page just displays "Chapter One" through "Chapter Thirteen" with no hint of what lies in each chapter. Thus, the best way to read is to go through each chapter in order - maybe this is what the author wanted in the first place.

In a simple yet lucid way, Joel Greenblatt explains an array of investing concepts:

  • Time Value of Money
  • Stock Markets  (there is a place where they sell businesses at half price all the time)
  • Mr. Market
  • Shares (your 1 percent ownership means that you would be entitled to 1 percent of the future earnings of the entire business)
  • Value Investing (buying for only 50 or 60 cents on the dollar)
  • Margin of Safety
  • Return on Capital
  • Emotions in investing (.... after a few years of poor performance relative to the market or their competitors, the vast majority of clients and investors just leave! That's why it's hard to stay with a strategy that doesn't follow along with everybody's else's)
  • Capitalism (That's how our system of capitalism works. Good businesses attract competition)
  • Definition of Risk (What is the risk of losing money? What is the risk that your chosen strategy will perform worse than alternative strategies?)
There are also a couple of references to Benjamin Graham.

Slightly outrageous statements are - you can achieve investment returns that beat the pants off even the best investment professionals  or  you can beat the returns of top-notch professors and outperform every academic study ever made.

Joel talks about the different avenues available for an investor - stockbrokers, mutual funds, hedge funds and index funds. He dissects each of these and explains why none of these work in favour of the investor and suggests sticking to his magic formula.

What I liked best in the book: The stock market is Mr. Market!

In short, the book is about a "magic formula" (a pretty simple one at that) and "stickability" to the formula for long periods of time!

PS:
  1. Joel's formula is available at http://www.magicformulainvesting.com/
  2. Joel is featured in "The Guru Investor" by John Reese (another book which I could not resist buying and am currently reading)
Invictus.

Comments

Post a Comment

Popular posts from this blog

Who is the Greater Fool?

  “If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”  - Warren Buffett "In every trade there is an idiot and if you don't know who it is, it is you" - Meir Statman On Fool's day, let us talk about the Greater Fool Theory. Interesting thing about investing in stocks is that there are always (at least ) two points of view for every trade.  For every person who is buying a stock thinking the price will go up, there is a person on the other side selling the stock. Now, assuming no insider trading and assuming both the parties have exposure to the same information, it is not clear who has the relative advantage? What this augurs for the intelligent investor is that he should buy/sell only if he is clear in his mind and sure of the reasons for doing so. There is a concept called the Greater Fool Theory - this means people purchase a stock with the assumption that they will later be able to sell i...
Read more

Book Review: The Little Book Of Value Investing

This is a very interesting book for all those hooked to Value Investing. I was naturally attracted and I possess the book in both formats (Audio CDs and hard bound book). The book is divided into twenty one chapters, each very small (after all, it is a "little book" ) but enough to drive across the point! On the long history of Value Investing, Christopher Browne explains, Value investing has been around as an investment philosophy since the early 1930s. The principles of value investing were first articulated in 1934 when Benjamin Graham, wrote Security Analysis, the first, and still the best, book on investing . Value investing is explained in two plain sentences - The beauty of value investing is its logical simplicity. It is based on two principles: What's it worth ( intrinsic value ) and don't lose money ( margin of safety ). These concepts were introduced by Benjamin Graham in 1934, and they are as relevant today as they were then (emphasis mine). The t...
Read more

Cementing your portfolio with Kakatiya

Kakatiya Cement Sugar & Industries Ltd. came on my radar and an analysis on the last 10 year data yielded the following results: + Sales increased 1.82 times (92.51 crore to 169 crore) + Current Ratio is 2.72 + Debt Equity Ratio is 0.05 (2011 data) + Net profit increased 4.38 times (5.05 crore to 22.13 crore) + Did not suffer any loss in the last 10 years + EPS increased 4.3 times (6.5 to 29.94), a CAGR of  5.06% + Book Value increased 2.6 times (77.39 to 200.9) + Uninterrupted Dividend for the last 23 years + Promoter Holding is 49.34% There has been a dramatic increase in the latest EPS (5.03 in Mar-2011 to 27.94 in Mar-2012). To smoothen out such fluctuations, I normally take the 3-year average EPS of ending period (2012, 2011 & 2010) and the beginning period (2004, 2003 & 2002). At a CMP of Rs. 79.60, the MoS works out to be 227%. Conclusion: For me, it is a buy, till I reach my diversification target or if falls out of...
Read more