Readers of this blog may have picked up on the fact that I am a massive Joel Greenblatt fan. His books make sense, the have sound financial principles, the offer real investment strategies and most importantly Joel Greenblatt is a well known investor and lecturer in the real world. Unlike other investment 'gurus' the returns of his fund can be tracked over time and he does what he preaches for a living.
It was with some anticipation that I read his third book. I was already huge fans of his first two books. In fact I am currently looking at how to implement the strategies outlined in his second book (which I reviewed recently). In fact, it was a good thing that I did read this second book and really understand the strategy that he was preaching because it informed a lot of this book. In fact, if you are planning on reading The Big Secret for the Small Investor I recommend reading The Little Book that Still Beats the Market first.
This whole book is based on the premise that most small investors do not have the skill, time or inclination to implement the strategy that Greenblatt puts forward in his second book. It is a fair point - I read that book about a month ago, I was convinced by the idea but I am still trying to work out how to effectively implement it.
This book attempts to provide an 'easy' way to achieve the same sort of returns as that strategy by investing in funds which replicate that strategies return profile. Actually, now that I
think about it - this is the main drive of the book and it takes almost the whole book for Greenblatt to get to this point. However I do not think this is a bad thing. He goes through the various techniques for valuing companies and shows why it is particularly hard to invest in individual companies and to beat the institutional investors. In fact this book is so good that I could not find anything about his critique that I disagreed with.
Interestingly he also takes on index funds and explains why traditional market weighted index funds have an inbuilt flaw that most people don't account for. This was a real eye opener for me because I have a significant portion of my share capital invested in such market funds. I will do a post on this shortly.
The index fund that Greenblatt advocates does not exist although he does provide alternative solutions that the small investor can use. He also suggests a strategy that we can use to invest to ensure that we do not get carried away when the market becomes overly optimistic or pessimistic.
What I liked about this book
This whole book is based on the premise that most small investors do not have the skill, time or inclination to implement the strategy that Greenblatt puts forward in his second book. It is a fair point - I read that book about a month ago, I was convinced by the idea but I am still trying to work out how to effectively implement it.
This book attempts to provide an 'easy' way to achieve the same sort of returns as that strategy by investing in funds which replicate that strategies return profile. Actually, now that I
think about it - this is the main drive of the book and it takes almost the whole book for Greenblatt to get to this point. However I do not think this is a bad thing. He goes through the various techniques for valuing companies and shows why it is particularly hard to invest in individual companies and to beat the institutional investors. In fact this book is so good that I could not find anything about his critique that I disagreed with.
Interestingly he also takes on index funds and explains why traditional market weighted index funds have an inbuilt flaw that most people don't account for. This was a real eye opener for me because I have a significant portion of my share capital invested in such market funds. I will do a post on this shortly.
The index fund that Greenblatt advocates does not exist although he does provide alternative solutions that the small investor can use. He also suggests a strategy that we can use to invest to ensure that we do not get carried away when the market becomes overly optimistic or pessimistic.
What I liked about this book
- The valuation principles contained in this book are sound and perfectly explained...I live nitpicking when I read advice but everything in here was spot on
- It does not attempt to make it sound 'easy' to invest which is one of the biggest flaws of books written for the ordinary investor
- The section on index funds was truly outstanding
- It provides a solution that anyone can invest it
What I didn't like about this book
- The one thing that I didn't like was that it was a cop out (and Greenblatt acknowledges this)
- The strategy he is advocating in his second book is the way he believes that people can outperform the market. This strategy is a kind of halfway house for those who cannot be bothered putting the time in - while it is useful therefore, I did not get the same 'aha' feeling as I did when reading his second book
Overall I still think you should read it
- I still think this is a great book and that you should read it
- It goes into more detail on the difficulty in valuing companies and the section on index funds alone makes it worth it
- Also if you have read The Little Book That Still Beats The Market, this book will provide more information and insights into how that strategy works
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