The Little Book that Beats the Market by Joel Greenblatt

The Little Book that Beats the Market
By Joel Greenblatt
Hoboken, NJ:
John Wiley & Sons, Inc., 2006.

If you're an individual investor without a lot of Wall Street know-how, you need to get this book. Whether you've just started your IRA, recently received an inheritance, or have been sitting on a piggy bank worth a few too many grand (buy a money market fund already), you need to read this book. Even if you don't have any money yet or don't really have a whole lot of interest in investing, read the book anyway (it's worth the few short hours it will take to get through it). Many have already said that this is the "investor's book of the year," so I don't need to repeat it. They're not lying, and this may be the only investment strategy you'll ever need. Unless, of course, you're a lot smarter than everyone else and have an inordinate amount of time to spend researching securities like a professional and understand a market that I'm not sure anyone fully comprehends. But, I digress.

Joel Greenblatt, with a touch of both sarcasm and sincerity, has created a magic formula for buying stocks. Yes, he even calls it a magic formula. That is how beautiful (and simple) it is. If you're not immediately skeptical, you should be, because anyone that's ever looked into investing knows there's no such thing as a magic formula. That being said, if you're not convinced by the end of the book that Greenblatt's formula does work, than you have a higher level of skepticism (and a stronger will against persuasion) than I. The formula revolves around two general rules: buy stock from good companies and buy it at bargain prices. There's some mumbo jumbo about yield, return, and capital in there, but those are his main points. It is probably the most logical thing I've ever heard in investing. Greenblatt explains his formula thoroughly and in a way that an 11 year-old can understand. He even writes with some humor and without being condescending, which is an accomplishment considering he's done well enough to boast a little if he wanted to. At the end of his book, he lays out a step-by-step plan that is nearly foolproof. To go further, he has created a Web site that even helps you pick the stocks. And get this, the Web site (for now at least) is free. If you want to play the market but you don't know and don't want to lose a lot of money learning, this is the book for you.