The Little Book That Beats the Market Book Summary - The Little Book That Beats the Market Book explained in key points

The Little Book That Beats the Market summary

Joel Greenblatt

Brief summary

The Little Book That Beats the Market by Joel Greenblatt is a guide to investing in the stock market based on a simple and effective strategy. The book offers practical advice and strategies for achieving better returns in the market.

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    The Little Book That Beats the Market
    Summary of key ideas

    A Simple and Effective Investment Strategy

    In The Little Book That Beats the Market, Joel Greenblatt introduces a simple and effective investment strategy, known as the 'Magic Formula'. According to Greenblatt, this strategy can help investors consistently outperform the market. The formula is based on two basic financial measures: the earnings yield and the return on capital. These measures, when combined, can help an investor identify good companies at bargain prices.

    Greenblatt begins by explaining the disadvantages of the common investment strategy of following the stock market indices. He then takes the reader through the process of how the investor can select winning stocks independently. The 'Magic Formula' essentially combines high earnings yield, which indicates the company's profitability and low share price, and high return on capital, implying that the company is well-managed and has profitable reinvestment opportunities.

    The Magic Formula in Action

    The 'Magic Formula,' according to Greenblatt, aims to buy good companies at low prices, and then patiently hold the stocks until the market recognizes their true value. This approach requires discipline and a long-term investment horizon, as companies may remain undervalued by the market for quite some time.

    Greenblatt emphasizes that the 'Magic Formula' is a mechanical strategy, meaning that it doesn't require any kind of subjective judgment from the investor. The investor just needs to follow the steps and invest in the stocks that the formula identifies. His confidence in this formula is backed by his tested track record and the historical data he provides in the book.

    Challenges and Pitfalls

    Despite its apparent simplicity, The Little Book That Beats the Market acknowledges the challenges that investors may face while implementing the 'Magic Formula'. One of the main challenges, according to Greenblatt, is the patience and emotional discipline required to stick with the formula, especially during periods when it underperforms the market.

    Greenblatt shares advice on how to navigate these pitfalls by reinforcing good investment habits such as diversification, rebalancing, and long-term commitment. He stresses the importance of understanding the underlying principles of the formula and firmly believing in its viability, as faith in the strategy will help the investor weather periods of underperformance.

    The Power of Long-Term Investing

    In The Little Book That Beats the Market, Greenblatt makes a strong case for the power of long-term investing. He illustrates with examples how indexes, mutual funds, and advisors typically fail to consistently beat the market. The 'Magic Formula ', on the other hand, succeeds because it is based on buying high-quality companies at discounted prices and holding onto them for the long term.

    Greenblatt concludes the book by urging readers to teach the 'Magic Formula' to their children. He believes that educating the younger generation about this simple and effective method could not only help them secure their financial futures but also promote a healthier and more educated investing culture.

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    What is The Little Book That Beats the Market about?

    In this book, Joel Greenblatt shares a simple yet effective investment strategy that aims to outperform the market. He introduces the concept of "magic formula investing" which focuses on buying good companies at bargain prices. Through clear explanations and real-life examples, Greenblatt provides valuable insights for both novice and experienced investors. Whether you're interested in stock market investing or simply want to understand how to make better financial decisions, this book offers practical advice and a unique perspective.

    The Little Book That Beats the Market Review

    The Little Book That Beats the Market (2005) provides a practical and insightful guide on value investing and how to beat the stock market by following a simple strategy. Here's why this book is worth reading:

    • It offers a straightforward and actionable approach to selecting stocks, making it accessible to both novice and experienced investors.
    • Backed by extensive research and historical data, the book provides a solid foundation for understanding the principles of value investing.
    • The author makes complex concepts easy to understand and uses real-life examples to illustrate his points, making the book engaging and not at all mundane.

    Who should read The Little Book That Beats the Market?

    • Individuals looking for a practical guide to investing in the stock market
    • Those who want to learn a simple, yet effective strategy for selecting profitable stocks
    • Beginner investors who are interested in learning from a successful investor with a proven track record

    About the Author

    Joel Greenblatt is an American investor and author. He is known for his investment strategies and has achieved success as a hedge fund manager. Greenblatt is the founder of Gotham Capital, a renowned investment firm. In addition to "The Little Book That Beats the Market," he has written several other books on investing, including "You Can Be a Stock Market Genius" and "The Big Secret for the Small Investor." Greenblatt's work focuses on value investing and provides practical advice for both novice and experienced investors.

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    The Little Book That Beats the Market FAQs 

    What is the main message of The Little Book That Beats the Market?

    The main message of The Little Book That Beats the Market is that you can achieve superior investment results by focusing on simple strategies.

    How long does it take to read The Little Book That Beats the Market?

    The reading time for The Little Book That Beats the Market varies, but it typically takes several hours. The Blinkist summary can be read in just a few minutes.

    Is The Little Book That Beats the Market a good book? Is it worth reading?

    The Little Book That Beats the Market is worth reading as it offers a practical approach to beating the market with clear explanations and actionable advice.

    Who is the author of The Little Book That Beats the Market?

    The author of The Little Book That Beats the Market is Joel Greenblatt.

    How many chapters are in The Little Book That Beats the Market?

    There are several chapters in The Little Book That Beats the Market.

    How many pages are in The Little Book That Beats the Market?

    The Little Book That Beats the Market contains 160 pages.

    When was The Little Book That Beats the Market published?

    The Little Book That Beats the Market was published in 2005.

    What to read after The Little Book That Beats the Market?

    If you're wondering what to read next after The Little Book That Beats the Market, here are some recommendations we suggest:
    • Basic Economics by Thomas Sowell
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    • Think and Grow Rich by Napoleon Hill
    • The 4-Hour Workweek by Tim Ferriss
    • Breakout Nations by Ruchir Sharma
    • Rich Dad, Poor Dad by Robert T. Kiyosaki
    • Secrets of the Millionaire Mind by T. Harv Eker
    • Liar's Poker by Michael Lewis
    • Flash Boys* by Michael Lewis
    • The Richest Man in Babylon by George S. Clason