THE LITTLE BOOK THAT BEATS THE MARKET (BY JOEL GREENBLATT)
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- Опубликовано: 15 май 2024
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This is my summary of Joel Greenblatt - founder and managing partner at Gotham Capital/inventor of “The Magic Formula” - and his book: The Little Book That Beats the Market.
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My main tool for fundamental screening and analysis of stocks: app.tikr.com/register?ref=tsi
(If you sign up I earn a small commission)
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Top 5 takeaways from Joel Greenblatt’s The Little Book that Beats the Market:
0:00 Intro
01:08 1. The Madness of the Markets
02:57 2. How Much is a Business Worth?
05:14 3. PE and Roa
08:29 4. The Magic Formula
10:23 5. Step-By-Step Instructions
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TL;DW:
- Market prices fluctuate more than underlying business values
- It’s difficult to estimate the future earnings of a company, and therefore also what a fair price of the company would be. Most investors have no business doing this.
- PE and RoA are two of the most, if not the most, important quantitative factors to consider when buying stocks
- According to The Magic Formula, If you buy stocks with a low PE and a high RoA, you will outperform the market by a wide margin over time
- Go to magicformulainvesting.com and get started!
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My goal with this channel is to help you make more money and improve your personal finances. How to become a millionaire? There are many ways to get there - investing in the stock market, becoming a stock trader, doing real estate investing, or why not becoming an entrepreneur? But whether you are interested in how to invest in stocks or investing strategies for creating passive income with rental properties - I hope to be able to provide you with a solution (or at least an idea) here. Warren Buffett - the greatest investor of our time - says that you should fill your mind with competing ideas and then see what makes sense to you. This channel is about filling your mind with those ideas. And in the process - upgrading your money-making toolbox.
Learn how to pick your first stocks: bit.ly/37xT2JR
What about market melt down as in 2008? Is that why not to bet all at one go? Granted the chance of a meltdown is very minimal. Usually it only happens if I go all in.
@@Kelberi *As an active or even passive investor you complete investing process*
*invest in portfolio > monitor portfolio > rebalance portfolio > repeat*
1. You invest in a portfolio of assets *creating portfolio* using a mix of assets (see *Asset Allocation Model* to balance risk of major downturn vs reward)
2. You then *monitor portfolio* (every 3 or 6 months)...
3. You then periodically *rebalance portfolio* to keep portfolio on target AAM as assets individually growth taking overall AAM out of target balance
*Your portfolio should be a mix of assets* (cyclic assets, defensive assets, secure assets, safe assets).
The emphasis on knowing what the difference is , I remember it as ;
*cyclic assets* are most risky (most volatile=most reward) typically correlated with economic strength (eg stocks),
*defensive assets* are lesser risk (lesser volatile) so uncorrelated to economic strength (eg bonds)
*Secure assets* are even less risk (less volatility=more security) uncorrelated to economy with minimum objective match inflation (eg cash plus interest paid)
*Safe assets* are least risky (least risk=most secure) inversely correlated to economic strength (eg gold).
There are literally thousands of assets more than stocks, bonds, cash equivalents and precious metal to choose from.
If you don't invest directly in individual assets learn to invest in funds that invest in a basket of individual assets to balance risk vs lack of ownership overhead. Google ETFs (exchange traded funds).
*With weak economy* Investors move money from more risky Investments (cyclic, defensive and secure) to least risky Investments (secure, safe). Gold is a "safe haven" asset when economy is weakest.
*With stronger economy* Investors move money from least risky to more risky Investments (to make money off volatility).
*AAM* is a % mix for your choosen overall risk-reward approach to apply to financial portfolio.
*Standard models* are documented (Google them - conservative AAM, balanced AAM, growth AAM or even aggressive growth AAM)
*Non-standard models* are possible (nothing to stop you creating your own exact mix or model)...but if you do and don't understand the implications of your choice you could be over exposing yourself to unnecessary risk.
*Best advice given impending economy crash in 2020* followed by recession and recovery over next 5years is
Ignore cyclic defensive assets
Put money into safe assets now (to ride out immediate crash)
then move to secure assets (during recession) and
then move to cyclic and defensive assets (during economic recovery).
*THAT'S IT IN A NUTSHELL !!*
So, what are your take away’s from : Trading Psychology 2.0 ?
Привет
If you are so good at investing, then why run a channel. You probably would have enormous money.
your channel is so under-rated, all the other investor pages just push their sponsored brokerage sites and try get you to trade A TON instead of the ideas and concepts you talk about. Great channel. Keep it up
wait till he goes big and hits the 1M. 😄
Hi, can you please tell me some more good investors pages like this?
I want to learn more
There is one amazing book about trading: Reminiscences of a Stock Operator. What is great about this book is that it describes trading in early 1900s. A time before charts, computers and books about fundamental/technical analysis. And yet almost everything applies today. The truths which stays the same in drastically different times are one of most important truths.
would love to see summary of it on your channel
Thank you sir
Nice vid, I liked the conclusion at the end as well. I’ll def check this out as a screening tool for mah swing plays haha
Thank you/well-done/will pass on your site to my two sons both in their 20’s..and test them..👌
I was looking for these types of videos for a long time. Don't know how to thank you. Keep up the good work.
More comments like these would definitely be sufficient as a tank you ... 😏 Cheers Engr Ahmed!
You have a great and unique way to get the most juice out of these books, congratulations!
I have one suggestion for you “It’s Not About the Money”
by BRENT KESSEL
The most chill and useful channel I've come across.
One of my favorite books of all time. Joel Greenblatt is an epic investor and I love reading all his stuff.
Hey Swedish investor, I LOVE YOUR CONTENT..... you have given me knowledge which was missing from my entire schooling
I rarely comment. While Erik's summary on Joel Greenblatt's book is spot on, the bigger context is not addressed, but in fact of utmost importance: The proposed strategy has performed significantly below average market return after it was first released. Since then an updated version of the book has been published: "The Little Book that Still Beats the Market."
Who is the author and what changes are made to the formula?
@@sureshjogia876 it's the same
Good tip. From
What I’ve seen the magic firmly has good potential, but as someone just starting, it makes sense to use it to screen and research. Thank you.
Already watched a lot of videos from you thank you so much.
PS: was interesting to see which person is behind that voice!!
One of the greatest content on youtube
have listened to or read this book at least 3 times. GREAT Summary! Subscribed ! Thanks!
Awesome James! What were your results?
yeah did you just read it or actually make money Haha
This is the greatest investing channel i have ever seen. I have subscribed and started to watch all the videos! I would like to meet you one day great man!
I am loving your content. Thank you.
Thanks for the info, as a new investor I am always stock piling information. The best info has been coming from your videos, thanks!
@Christian A always revisit video periodically too see updated comments. See my note to top pinned comment..should help you as a novice!
Awesome Christian A, love to hear it! 😁
A great video about the greatest investment book ever... thank u guys
Man, you are superb. Thanks for such contents. Wish you all the best.
Can't say about the "magic formula" but this seems honest advice in the book.. cheers
Love all of your videos, thanks so much
Great work...your channel is very helpful..thanks..
Thank you mr, swedish investor.from SRI LANKA.
this channel is tooooooooooooooooooooooo good. Thank you sir!
God bless you Swedish Investor; would have been nice to have known your name. But your videos are so crisp, articulate and just pure value from the get go. I wish you all the happiness and success, and expressing sincere gratitude for your body of work. Just amazing
Wow, thank you! 10/10 support, you should know that people like you helps me keep going with this!
Sir bigg fan from India...
I searched all internet for knowledge regarding market but i found only 2 to 3 Genuine channels and you belong to one of them..
Thanks for sharing your knowledge and time...🙏🙏🙏
Awesome Rupesh Chavan, I'm very thankful for this comment! Cheers 🙌
Could you list the other ones? It would be a big help for me 😁🙏🙏
How can you tell that this youtuber is more genuine than others regarding stocks? Beside that you enjoyed the video.
The perfect ad placement. Never seen it done!
Very informative video! Never stop learning!
I think the idea behind this channel is super, and videos are really well done
Thanks!
Glad you enjoy it Federica Zenoni!
Love this videos keep going with other famous books formulas ;)))))
Thank you for your great straightforward videos that help us develop a better understanding of investments and finance.
I'm happy to help, especially while getting comments like these 😁 Cheers englishcoach777
amazing contents. really helpful. keep sharing.
Does anyone know how to see the historical companies chosen by the magic formula? (Not the just the most recent quarter on the website). It would be very helpful for my research.
I’m mad that amazon was the actual company I was thinking of 😯😂
I think Amazon is an amazing company
Me too
Incredibly interesting information and so far one of your best video 👌👌👌👌👌
Very glad to hear i jess! Cheers! 🌟
Very Informative and Interesting content
Thank you Sir
Thank you SOOO much. Useful and fun
Edo M 🙌
Thank you! I finally understood P/E! ☀️
Nice video. Simple advice, well delivered. Keep it up Sweedish Investor.
Nice Channel ...and very useful information!👍
One of the best strategic plans I have seen for stocks on here thanks!!!
Not really.. he didn't mention that it doesn't work very well anymore. www.magicformulaexperience.com/portfolio-update-7-1-2019/
The best strategy is to just buy etfs every time you get paid.
Thank you!
Thank you for an enjoyable review of the Magic formula.
And cool animations make it easy to understand.
I just have a question. If a share that you have in the collection is among the 7-10 you buy when you have to invest next time, do you buy it again?
NB: I've used google translate.
That's a good question Babba Jensen. If I remember correctly, it is not mentioned in the book, but here is my suggestion: Do not buy the same stock more than once. With this strategy, you'll want the diversification. Only buy the stock again if it ranks on top of the list after 12 months, when you are supposed to sell it. And at the point, obviously you don't sell it just to buy it again right after, just let it remain in the portfolio. Don't add to it though.
For rhyming with "magic formula" i would strongly suggest "tragic Romulan" :P , cheers and keep up the great content !
Why didn't I think of that 😅😂
Interesting, clear presentation, good job
The Swedish investor : it is difficult to pick something that rhymes with magic formula.
Eminem : Hold my beer
Getting ebola
@@DodInTheSky close 😂😂😂😂
@@DodInTheSky or you can say 'my tragic Ebola' 😂😂😂😂😂😂😅😅😂😂
“Bad bitch scorning ya”
@@dirtymike3329 😂😂😂😂😂😂😅😅😂😅😂😂😂😂😂😂😂😂😂😂 LMFAO!!!!
Great video. Thanks. However what about book value per share?? this keeps you from losing your investment if the business goes bankrupt. Thanks again for these amazing videos!
Nice... I would choose few stocks using this formula and will compare it against others in my portfolio. Thank you!
Great summary as always!
I'm a big believer that investing and choosing what to invest in is an art, not a science - that being said great art is made when the person is has many great tools in their kit. This strikes me as a great tool in the screening process or re-evaluating my existing portfolio.
Thank you so so much!
Thank you. Great video!!!
🙌
The major flaw of "magic formula" is frequently trade stock at certain period of time. Keep chasing low PE ratio is like keep giving up growth stock.
In long run, "magic formula" may lose a lot of money in trading fees and tax.
The one of the practical advantage on Warren Buffet prefer "buy and hold" is to cut tax
Taxes and fees should definitely be taken into consideration for any investment strategy and it is true that this one isn't optimal from that perspective. Thank you for you comment sunnyhing91!
great investment advice!! thank you for sharing!!
Eddy darkness, cheers man! 🙌
Wow this is gold im definitely going to try this
Great summary. Thank you.
The problem is that Greenblatt's method was good for a time: between 1988 and 2004, it was fantastic and returned cagr 23%. But between 2005 and 2020 it was shockingly poor and returned cagr 6% (while the S&P returned double figures).
This should be extremely helpful for beginners
Hello and thank you very much for all the infos you give to us. I must admit that you give a lot of value to your videos. Could you please explain how we can group stocks as you describe after 10th minute? Or was it a random grouping according to authors choice?
Hey Stelios! Thank you for your support and comment. The stocks I picked myself based on the general attention that they receive. I picked a limited number so that the concept of the Magic Formula hopefully would be more understandable, but you are supposed to do it for 1000s of stocks really.
@@TheSwedishInvestor I found the formula very bad for my type of investing. Most of the companies I get are in a financial disaster and hard to recover, although this is the reality for most of the companies and eventually after Corona, so it needs to make wise decisions on Which companies are you going to invest eventually now ... thanks for the answer.
Super.... Grt work....
Thank you very much! The book said return on capital.. guess there's a little difference between return on capital and ROA
Man, u r awesome, i became a fan !
Very good summary. Excellent job
Cheers pkhangtam 👍
Read the book, then saw your video. Thank you for posting. Question I have is:
#1- why would you sell *ALL* of your stocks each year - particularly the positions that are doing well?
#2 the formula is just a ranking system. If you begin with the top 20-30 stocks from the list, Rotation out of those stocks forces you to replace them with lower ranked stock, yes? What is the value? Why wouldn’t this negatively impact your returns?
I appreciate it TWN321!
1. You constantly want to own the ones that have the highest RoA and the lowest P/E because those companies are likely to be the best undervalued stocks you can find out there according to the formula. So that's the reasons why you shift - because valuation fluctuate a lot.
2. You do not rotate out of a stock that is still in the top 20-30, that one you keep for next year too :)
Hope this helps!
The Swedish Investor that makes sense. Thx
The Swedish Investor .. the book says to replace all positions. It’s makes more sense to rotate out of positions no longer in the top 20-30...
Rewatching this as I start my Venture Capital journey. I genuinely appreciated that most of your tips aren't work related, but rather life tips in the midst of it. I agree with you, that security and financial stability is important, but personal dreams and ambitions do matter greatly in the long run. Hopefully my heart is in this industry as much as I think it actually is HAHHAHA
I got little confused in the book, because as you have shown we shoud follow the steps he mentions using PE and ROA, but at the end he says he calculates the MF differently by using --> EBIT/(Net Working Capital + Net Fixed Assets) and EBIT/Enterprise Value.
I really like this video, thanks. Looks like I'll be looking into this tool.
Cheers Mr Bull Bear Portfolio! It could be useful in a lot of different ways, no matter what type of investor you are, so go for it 😁
Gotta try it out
If I am not mistaken this book was published in 2008 and the newer version was published in 2010.
Given that a lot has happened in the past two years(2019 to 2020) and the recent technological advancement.
May I know why it is still popular?
Thanks from Brazil.
Cheers! 😁
Sir you explaining very well 🙏
Glad to hear that you like it!
Went on the Magic formula website, WE have to registre :)
Hi Swedish investor, great video ! Question : are you aware if the author or anyone else ever back tested the same method with longer holding periods, that is by holding the same position for 2 or 3 years (instead of 1 year) before selling and replace it? (I guess this implies ignoring any tax consideration). Thanks and ciao, A
Great book and video! I’m 2 years into this strategy now and still going strong 🤜
How is it going for ya?
such a great video!!!
Excellent analysis
Hahaha, you read my mind perfectly with the Amazon one. By the way, your videos are very good and informative, keep it up!
Most of us think Amazon because that's what he shows in the video thumbnail! That's just a trick!
Hahaha Adhay Sahoo, very observant 😏
U deserve more subs
😍
What an awesome channel 😧 Love from India 🚩🇮🇳
I already did this analysis based on Warren Buffet's formula of P/E ratio x Book Value. You're supposed to buy those stocks that are under 15 but there are only a handful of small caps that meet this because PE ratios are insane now.
And everyone say we have a bubble, that make sense.
Great 👍, thanks a lot.
Questions:
1. How are the P/E and RoA Scores created? I see P/E is proportional to the P/E score and RoA is inversely proportional to the RoA score, so the lowest total score should be chosen, but I don't see exactly how the formula comes up with the scores.
2. Should you add modifiers to the scores to prioritize P/E over RoA or vice versa or other things like rate of increase, variance, standard error, etc. ? Or do you play with these values at your peril?
3. If a stock is still one of the top picks, should you sell or hold for another year?
Thanks!
Good questions TheKhal, I will try to answer them here:
1. You simply rank the companies, and one rank step equals to one point. So rank them according to P/E (lowest first) and give the most points to the #1 ranked, 1 less points to the #2 ranked, and so one. Similar for RoA, and then add the points together.
2. There are plenty of other ratios that can be added to The Magic Formula (but this is not what Joel Greenblatt recommends). For instance, you could add the amount of insider buying that the stock has been seeing during the last 12 months. Or perhaps the increase in per share earnings during the last 10 years.
3. You hold on to the stock for another year if it shows up again at hat point.
@@TheSwedishInvestor thanks!
Great video as always! Do you follow this strategy yourself? What is your favorite book? I would love to see a video on sector rotation investing books. Thanks and keep going. Atte. a faithful subscriber! P.S. You and AutoVlog are the 2 Swedish ppl I follow on youtube hehe.
andagape thank you for your support! 😁 Personally, I've always enjoyed a more active approach towards investing, I like to create my own screens and pick my own companies based on my own systems/analysis. However, PE & ROA have always been important components in my screening process, and they may receive even more attention now after I read this book. Favorite book is a difficult one, but I enjoyed reading Antifragile a lot. Not necessarily because it has the best investing takeaways, but because it had me stunned, laughing myself silly and even crying at some point. A book that can cause all that is a really good one in my opinion.
@@TheSwedishInvestor super! You rock!
Jaha... en nyare underbar metod... lycka till.
Thanks Swedish guy . Got to see the future legend in this video 😀👍
I want you to do summary of the thoughtful investor
Had an epiphany... Tax-loss harvesting + magic formula + Robinhood 😁
Hello, thank you very much for you the summaries you make. They are very good. Have you read
"Retire Young Retire Rich" by Robert Kiyosaki? Other books I think it would be very good to make summaries of are Jeckyll Island by Edward Griffin and another one called Networking is not working by Derek Coburn, have you read those?
This sounds like a good strategy, but I will add pb ratio as well to maybe get even higher returns,
Explain, please. I'm new
Javier Reyna pb (price to book value) ratio is a popular method of value investing. To use this method you divide book value (total assets of a company) by market cap this will give you pb ratio (lowest is better). To add this to the magic formula you must rank the best magic formula companies by lowest book value.
Hope this helps! 😀
@@talentlesscommenter1329 thank you.
BTW any book suggestion that you recommend?
@@talentlesscommenter1329 Hi there TC. Could you do an illustration adding the PB with the lowest 📖 value? Much appreciated!
When will you publish book with contents of this video?
OMG I GUESSED AMAZON AND HE THOUGHT IT
Kickass Video, the website to the magic formula does not show prices sinces 7/17 so is a bit out of date are you sure abour that information?
The prices are from the 17th of July then 😊 You'll have to verify yourself that nothing major has happened in the last two days, but as the formula requires a 1 years holding period, it wouldn't make much of a difference for the end results anyways.
@@TheSwedishInvestor I apologize I interpret the information wrongly. again loving your videos. went through 10 videos in one day. Appreciate the hard work you put into them.
In another channel, she said the 2 metrics are earnings yield (E/P) and Return on Capital.
It is true. Joel Greenblatt uses earnings yield vs P/E and return on capital vs return on assets somewhat interchangeably in the book, but his definition of earnings yield and return on capital is not exactly the same as P/E and return on assets. I bet that if you run filters either 2 of the variables, you'll end up with almost the same results though.
@@TheSwedishInvestor You're right.
Can I use ROA for all sectors. What is ROE and ROCE . Is it also important ratio?
Amazing! Do you personally use this strategy?
Yes, I've been using a variation of this method for screening for stocks. The method has changed over time as I've tried to improve it/adapt it for myself. I think it works well for narrowing down your options if you are an active investor. For instance, you can limit yourself to only looking at the top 100 companies according to the formula, instead of the whole universe of stocks which would be several thousands.
@@TheSwedishInvestor I’m curious what returns have you seen percentage wise from your investments if you don’t mind saying
Very good. Another tool for ones toolbox if they choose.
Yes, it's a useful one. And you can make slight modifications to it to fit your own personal style, like including one or two more variables and weighing them slightly lower.
i have a question, instead of trying to buy stocks once every 3 months couldn't the stocks just be bought once a year on a specific date? would that change the performance for the worse? would it have any impact whatsoever?
Why not use ROE or better yet ROIC instead of ROA? It would give a much better measure of efficiency than a company that has a high return on assets but is very indebted.
can you make one for options
I'm reading at this point one up on Wall Street, and already have read the little book that beats the market, basically second Peter Lynch when you find a then of twenty bagger it only takes one of these stocks to compensate the rest that fails...that's why in my opinion the magic formula results.