The Little Blue Book That Beats The Market is an excellent read for anyone interested in investing in stocks. Joel Greenblatt introduces you to investing in a way that is easy to understand. Furthermore, Greenblatt keeps it interesting! His witty writing makes you laugh and want to keep reading on.
A few key takeaways:
- You can invest in U.S. bonds with relatively no risk at 6% interest gain (but keep in mind that the interest isn’t always 6%, it can be lower and if you take the money out before the allotted time you can lose any interest you may have built)
- With #1 in mind, when you go to buy a share of a company, be sure that the minimum interest you gain is 6% but preferably more (a lot more) otherwise you mind as well stick to the US bond
- In the short term, the market behaves like an overly emotional person. However, in the long term, the market levels out and becomes more reasonable. (in relation to price of stocks
- Buy stocks at a large discount – key thing to think about here is finding a good business with high earnings yield and high return on capital.
- The Magic Formula ranks business from highest to lowest return on capital and earnings yield to help you decide which ones to invest in
- The Magic Formula doesn’t always work in the short term, but pays off well in long term so long as you are willing to wait it out.