‘The Little Book that Beats the Market” proposes a simple formula for picking a portfolio of stocks that beats market averages over the long-term. Joel Greenblatt discloses the magic formula that his investment firm has used to yield average annual returns of 40 percent for more than 20 years.
One consistent theme that all of my finance professors taught me was that it is very hard to beat the market rate of return. I was taught to simply buy an index fund and spend the time I would have spent searching for individual stocks pursuing other hobbies. The results of Greenblatt’s magic formula could make you rethink that advice.
Just to see how the formula might work for me, I used it to select the top 25 companies on April 18, 2006, to include in a portfolio. This portfolio had a loss of 10 percent over the 73 days compared with a loss of 1 percent loss in the Dow Jones industrial average. The best company in the portfolio had a 30 percent gain while the worst company had a 55 percent loss. Of the top 25 companies recommended on April 18, 13 were still recommended on June 30. Yikes! I guess Greenblatt was not kidding when he advises that the formula works in the long term, but not necessarily the short term.
Read the complete article
One consistent theme that all of my finance professors taught me was that it is very hard to beat the market rate of return. I was taught to simply buy an index fund and spend the time I would have spent searching for individual stocks pursuing other hobbies. The results of Greenblatt’s magic formula could make you rethink that advice.
Just to see how the formula might work for me, I used it to select the top 25 companies on April 18, 2006, to include in a portfolio. This portfolio had a loss of 10 percent over the 73 days compared with a loss of 1 percent loss in the Dow Jones industrial average. The best company in the portfolio had a 30 percent gain while the worst company had a 55 percent loss. Of the top 25 companies recommended on April 18, 13 were still recommended on June 30. Yikes! I guess Greenblatt was not kidding when he advises that the formula works in the long term, but not necessarily the short term.
Read the complete article
