For his quality factor, Greenblatt chose return on capital, defined as EBIT divided by the sum of working capital and fixed assets. For his value factor, Greenblatt chose EBIT divided by enterprise value. The book sold well enough that Greenblatt published a second edition in 2009, adding the word Still before Beats the Market, and adding a nice new afterword that updated his numbers. Forfatter kunne også spart seg for tiraden mot kvaliteten på det amerikanske skolesystemet og hva som kan gjøres for å bedre det. Det kommer litt utav det blå, og burde vært hagesakset ut.

A 2017 study from the markets in Sweden found application of the Greenblatt formula resulted in long-term outperformance of market averages in the periods 2005 to 2015, and 2007 to 2017. The authors also found the "magic formula" was also associated with short-term underperformance in some periods, and significantly increased volatility. [5] As for the Barron’s article, Greenblatt had actually responded to that in an interview. He claims that the database used by them (not sure which, Bloomberg’s?), does not exclude one time gains. He removed such gains from his analysis. The author is really humorous as well! Seriously sounds like he’s messing around with their kids while teaching them some important things, and thereby, the book wouldn’t feel boring at any point in time. I highly appreciate the author’s funny narration, and it genuinely does seem like the book and the formula taught in the book are extremely valuable and helpful if one is willing to be patient. And the formulas made a lot of financial sense too. They were common-sense formulas that were transparent and fair. There seemed to be nothing at all up Greenblatt’s sleeve—no complicated market-timing mechanisms, no opaque and complex accounting formulas. Just one numerator and two denominators, both easy to grasp and standard in the financial literature.For those of us who live in the real world, it’s way past time to realize that a “magic formula” is inherently an illusion. It no longer works because it could never actually work. There will never be a simple, foolproof, and low-risk way to beat the market. That’s magic; that’s a fairy tale. Greenblatt should have known better. What Greenblatt offers is a structured, diversified investment program that should beat the market (by how much though, who knows). It is better than speculating, which is what most investors tend to do. I tillegg er første del av boka litt dryg hvis man kjenner prinsippene rundt aksjehandel og markedspsykologien sånn noenlunde. Det er som å være ferdig med grunnskolen, og plutselig skal du tilbake til å høre på "Per har to epler. Så får han et eple til" osv. In 2005, Joel Greenblatt published a book called The Little Book that Beats the Market. Its explicit aim was to “explain how to make money in terms that even my kids could understand (the ones already in sixth and eighth grades, anyway).” Although it used language and examples that were aimed at children, it was widely read by folks of all ages. The first five chapters, before Greenblatt gets into his investment strategy, comprise an excellent introduction to value investing. Clearly written, easy to understand, it’s principled and right. Next, here are the three steps suggested by the author Joel Greenblatt in his book ‘the little book that beats the market’ to find companies for investment:

Why was Greenblatt's system successful for so long, and why has it now failed spectacularly for ten years running? Any time a book claims to beat the market, people line up to crap all over it. I mean, isn’t this just good ole’ Value investing? Traditionally this is done with other ratios like Book-to-Market ratios. Again, the data seems to support that the Little Book method does better than other ratios. Why was Greenblatt’s system successful for so long, and why has it now failed spectacularly for ten years running? The Bloomberg database, it should be noted, is not as widely used for this purpose (if I’m not mistaken, the Barron’s article states that that professor is the only one who uses it).Rank the companies according to the above two factors and combine them to find the best companies for investment. For example, for company A, although it ranks 1 for the Return on capital. However, its earning yield rank is quite low and that’s why it’s combined rank is quite high. On the other hand, for company E, both ROC and EY rank are decent and hence its combined rank is good for investment. As for its ten-year failure, one could come up with any number of explanations. The relative failure of value investing, broadly speaking, ever since the initial recovery from the Great Financial Crisis has been the subject of a lot of articles and editorials lately (including one I wrote), and any of those could apply to the magic formula, which is a particularly austere distillation of the principles of value investing. Another criticism, which is noted in the book, is if everyone knows this secret, won’t the prices adjust and remove this market inefficiency? Greenblatt counters this with the fact that his method only works for the long-run, and will underperform the market for sometimes years at a time. This volatility will scare away enough investors and/or fund managers over the long haul such that the premium will endure. Okay, maybe.