The Little Book That Beats the Market is written by Joel Greenblatt, a hedge fund manager and adjunct professor at the Columbia University Graduate School of Business. The Wikipedia page on Greenblatt states that he started the hedge fund Gotham Capital with 7 million and in the 10-year period from 1985 to 1995, the fund achieved a surprising 50% annualized return (before fees were taken out).

In my mind, this gives Greenblatt and his book some creditibilty. I say this because any time I hear about some “magic formula” (which is the actual name for Joel’s system), I immiediately become skeptical and usually read the rest of the book with one raised eyebrow.

Another thing that suprised me is the fact that the website that is based around the book, magicformulainvesting.com, is free and does not requre any membership fees. When I first went there I did expect the website to be an “upsell” type of scheme that so many financial book have these days.

Now, on to the book itself. The foundation of the system talked about in the book is based around value investing (buying companies at a discount based on return on capital & earnings yield) and using the power of time to compound your returns. The book is written in a very simple manner which, as the author states, a sixth grader could understand.

Personally, I did not really find this book all that interesting. I thought the author’s humor came off as “trying too hard” and it didn’t really play towards mine. However, I did see the book as a good beginner’s primer on investing and, as such, it would be something that I would give my children to read so they could learn about the way the stock market works.

That being said, when I do give this book to my children I will definitely make it a point to tell them that while a “magic formula” sounds good on paper, the markets themselves are much more complex than that. It would also be wise to educate your children that many finance books play off gimmicks and systems that are designed to only make the author rich. Even if that may not be the case here.

So in conculsion, this book wasn’t really for me but I could see the it being useful for children or beginner investors.

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