The little book, that beats the Market - Joel Greenblatt
Magic formula investing is the equivalent of many techniques or methods of investing in stocks that is believed to bring great returns on a particular investment. The fact that the returns are believed to be high is the reason why it is called magic formula investing. This book was actually written by Joel Greenblatts and is titled, “The Little Book That Beats the Market”. It is supposed to contain methods or techniques to invest in the stock market and get high returns. The book introduces the concept of magic formula investing.
There are a lot of books and articles that claim to have secrets or sure methods to succeed in the stock market. This book was written with the small time investor in mind. It uses the magic formula investing which was a result of tested and trusted methods of investing. The book contains a ranking of suggested companies or stock types to invest in. The formula and methods might be considered a bit difficult to understand, by some, but there are great reviews on the internet from people who claim that using magic formula investing methods did work for them.
For relatively “cheap stocks” this magic formula for investing uses earnings yield (the inverse of P/E, which is, simply, earnings used to divide the market capitalization). However, magic formula investing makes a couple of little adjustments. Such adjustments account for the changing tax rates and debt levels between companies. The magic formula investing believes that, on average, this gives a better estimate range of the “earnings yield” than using a simple E/P or P/E measure. For explanations of these adjustments go to the appendix section of Joel Greenblatts’ book. For so called “good stocks”, however, the formula uses a different method. It uses the return on capital.
The book contains an actual explanation of the various suggested magic formula investing methods. A website was even launched after the release of the book to help more people access and understand the information in the book. If you wish to know more about these magic formula investing methods you can easily purchase the book online.
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