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#1
10-06-2006, 12:58 AM
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Little Book That Beats The Market
I read this book during a two hour airplane ride and am pretty excited since I'm going to become filthy rich [img]/images/graemlins/smile.gif[/img].
Seriously though, is there any reason to believe that his "magic formula" will not continue to substantially outperform the market? 
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#2
10-06-2006, 02:14 AM
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Re: Little Book That Beats The Market
Yes. If people know about it, it will be factored into the market price. Efficient market hypothesis.
After looking at his "magic formula" and reading reviews of his book, I would say it's stupid.
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#3
10-06-2006, 02:18 AM
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Post deleted by Mat Sklansky
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#4
10-06-2006, 03:08 AM
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Re: Little Book That Beats The Market
List best stocks from 1 to MAX according to their P/E.
MAX= stocks traded on exchange (3500?)...1= best Next create a new rank order according to their Return on Capital. Add these 2 scores (Lower is better) Lowest 30 stock scores get picked... His theory is that no matter how many people use it, and because its a "ranking" system...There will always be 30 best stocks (or however many you choose). Ive only listened to 2/3 of the audio book..Problem I see is he needs to group them according to their scores...For example, give us the results on 1-100 companies, 101-200 companies, etc.. He only grouped them in terms of best X ranked without averaging their scores.
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#5
10-06-2006, 08:43 AM
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Re: Little Book That Beats The Market
[ QUOTE ]
Yes. If people know about it, it will be factored into the market price. Efficient market hypothesis. [/ QUOTE ] This is not really a concern. This is not really a concern. People are irrational and will always evaluate stocks in irrational ways. [ QUOTE ] After looking at his "magic formula" and reading reviews of his book, I would say it's stupid. [/ QUOTE ] Could you elaborate please?
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#6
10-06-2006, 12:04 PM
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Re: Little Book That Beats The Market
I think that buying a value fund would likely acheive the same effect. This is another way to calculate a similar result. Dogs of the Dow is supposedly a Dow beating value strategy. www.dogsofthedow.com
Then there was an article I read yesterday at the fool.com about how picking the top 100 dividend payers will beat the S&P by 3% points. It basically all boils down to market overreaction. It appears that the market isn't precisely efficient and in fact overreacts to news. This makes growth stocks overly expensive, and value stocks too cheap. If growth stocks as a group are 1% too expensive and value stocks are 1% too cheap, then a value stock strategy should outperform a growth strategy by about 2% over the long term. Max
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#7
10-06-2006, 01:20 PM
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Re: Little Book That Beats The Market
[ QUOTE ]
I think that buying a value fund would likely acheive the same effect. This is another way to calculate a similar result. Dogs of the Dow is supposedly a Dow beating value strategy. www.dogsofthedow.com [/ QUOTE ] Dow Industrial Avg. returns less than 7%/yr. The better value investing strategies can jump much higher hurdles than that. Greenblatt's might be one of the best value investment strategies for those who don't want to do their own homework, but only time will tell.
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#8
10-06-2006, 02:58 PM
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Re: Little Book That Beats The Market
[ QUOTE ]
I think that buying a value fund would likely acheive the same effect. This is another way to calculate a similar result. Dogs of the Dow is supposedly a Dow beating value strategy. www.dogsofthedow.com Then there was an article I read yesterday at the fool.com about how picking the top 100 dividend payers will beat the S&P by 3% points. It basically all boils down to market overreaction. It appears that the market isn't precisely efficient and in fact overreacts to news. This makes growth stocks overly expensive, and value stocks too cheap. If growth stocks as a group are 1% too expensive and value stocks are 1% too cheap, then a value stock strategy should outperform a growth strategy by about 2% over the long term. Max [/ QUOTE ] Actually, a recent study by Fama shows that the small/value premiums are not due to being undervalued. Also, that strategy isn't very "market-beating." Value stocks have higher variance and risk. This is a commonly documented fact.
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#9
10-06-2006, 04:15 PM
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Re: Little Book That Beats The Market
It will likely continue to do so, as long as investors are occasionally irrational, which is like every damn day.
Here is his presentation at Columbia, I highly recommend it, Joel is as sharp as they come, he goes into much more detail about their research and ranking system, it has proved to be very robust, and he refutes all the 'bias' arguments one by one, size, cost of trading, liquidity, etc: It's in real player but very high quality, and Greenblatt has a good, deadpan sense of humor throughout the presentation. http://www6.gsb.columbia.edu/cfmx/we...munity/videos/
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#10
10-06-2006, 04:16 PM
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Re: Little Book That Beats The Market
[ QUOTE ]
I think that buying a value fund would likely acheive the same effect. This is another way to calculate a similar result. Dogs of the Dow is supposedly a Dow beating value strategy. www.dogsofthedow.com Then there was an article I read yesterday at the fool.com about how picking the top 100 dividend payers will beat the S&P by 3% points. It basically all boils down to market overreaction. It appears that the market isn't precisely efficient and in fact overreacts to news. This makes growth stocks overly expensive, and value stocks too cheap. Max [/ QUOTE ] Yes, market overreaction has been proven time and time again in virtually every finance/market study by Thaler, Latane, et al.
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