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The Big Secret for the Small Investor: A New Route to Long-Term Investment Success Hardcover – April 12, 2011


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Product Details

  • Hardcover: 160 pages
  • Publisher: Crown Business (April 12, 2011)
  • Language: English
  • ISBN-10: 0385525079
  • ISBN-13: 978-0385525077
  • Product Dimensions: 5.2 x 0.7 x 7.8 inches
  • Shipping Weight: 6.4 ounces
  • Average Customer Review: 3.3 out of 5 stars  See all reviews (48 customer reviews)
  • Amazon Best Sellers Rank: #120,507 in Books (See Top 100 in Books)

Editorial Reviews

About the Author

JOEL GREENBLATT is the founder of Gotham Capital, an investment partnership that achieved 40 percent annualized returns for the twenty years after its founding in 1985. He is a professor on the adjunct faculty of Columbia Business School, a managing principal and co-CIO of Gotham Asset Management, the former chairman of the board of a Fortune 500 company, and the author of You Can Be a Stock Market Genius and The Little Book That Beats the Market. Greenblatt holds a BS and MBA from the Wharton School at the University of Pennsylvania.
 
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More About the Author

Joel Greenblatt is the founder and a managing partner of Gotham Capital, a private investment partnership that has achieved 40% annualized returns since its inception in 1985. He is a professor on the adjunct faculty of Columbia Business School, the former chairman of the board of a Fortune 500 company, the cofounder of the Value Investors Club website, and the author of You Can Be a Stock Market Genius. Greenblatt holds a BS and an MBA from the Wharton School.

Customer Reviews

Most investment managers can't beat the broad stock market indexes.
TechnoBob
This is an easy to read book that will appeal to (and help) many small investors.
AdamSmythe
And I thank them for that, for this book has some very important insights!
J. S. Greenfield

Most Helpful Customer Reviews

121 of 133 people found the following review helpful By AdamSmythe on April 12, 2011
Format: Hardcover Verified Purchase
This is a very good book for its intended audience. First, it is short and sweet. At about 156 pages it may seem not so short, but the book is quite small in size, and it probably amounts to, say, 100 normal sized pages. Second, author Joel Greenblatt doesn't simply present his suggested approach for small investors. Rather, he first takes the reader through many of the common investing alternatives that ultimately prove to be too hard, too confusing or just too simplistic for small investors to successfully implement. There's a lot of value in knowing the limits of common investing approaches.

Interestingly, this is not Greenblatt's first book on investing. He has already written "You Can Be a Stock Market Genius," which he now says assumed too much specialized knowledge on the part of readers. It also assumed that small investors have lots (and lots) of time to devote to their investments. Greenblatt claims the book helped a number of hedge fund managers, but they weren't necessarily the target audience. His other book, "The Little Book That Beats the Market," was (and still is) good advice, he maintains, but again most people don't want to do all the necessary work themselves. So, "The Big Secret for the Small Investor" represents his third attempt. Is the third time a charm? At a minimum, I'd say he's much closer. Indeed, for many readers this will prove to be the right mixture of content and sensible advice.

Greenblatt basically groups the small investor's options to four possibilities:

(1) Do it (invest) yourself. However, this is hard. Really hard, to judge from the collective experiences of millions of investors. Many people have little idea as to how to analyze companies and select individual stocks.
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60 of 70 people found the following review helpful By Fengyun Cao on April 13, 2011
Format: Hardcover
Having learned a great amount from Greenblatt's first two books, I was excited to check out his third. However this turned out to be a disappointment. I did not find any idea to study or strategy to follow; the only thing concrete and practical mentioned in the book was "value-weighted indexing (more below), but it didnt provide much new (such as improvement suggestions or empirical studies) compared to what is already out there.

The book first went over well-known concepts such as most institutional money managers fail to beat the market, and small investors may have a better chance with smaller stocks. It also very briefly mentioned the basic valuation methodologies, including (a simplified version of) discounted cash flow, comparable analysis, acquisition valuation and liquidation valuation. Without going into details of any of them, the conclusion was drawn that all these methods are "hard". I'm baffled if the message here is for small investors to give up valuation once-for-all.

The only thing I found useful was in the last two chapters, which explained why value-weighted indexing could yield superior results to equal-weighted indexing, which in turn is better than market-cap-weighted index (e.g. S&P). Since S&P return beats most professional investors already, small investors could beat the "market" and the professionals by investing in value-weighted indices. The author briefly described the idea of weighting by a combination of value (overweight cheap stocks) and quality (overweight good companies), which is the gist of his book "the little book that beats the market". I think this could work wonderfully but alas no results were presented.

Instead of paying for the book, I would recommend first flipping through the pages at a local book store first. It should be an easy read under an hour if you are familiar with the basic investing concepts.
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58 of 68 people found the following review helpful By Value Investor on April 12, 2011
Format: Hardcover Verified Purchase
"The Big Secret for the Small Investor" is hedge fund legend and Columbia Business School professor, Joel Greenblatt's third book on value investing. While "The Big Secret" is written for smaller investors, it is likely to have a significant impact on how both individual investors and large institutions invest in the stock market.

Like Greenblatt's other books, "The Big Secret" is extremely well reasoned and is an easy read at less than 150 pages. Greenblatt's writing style is light hearted, humorous and clearly does not take itself too seriously. Not taking the book seriously, however, would be a big mistake. As a hedge fund manager Greenblatt has delivered 40% compound annual returns for over 20 years and is widely considered to be one of the great value investors.

Without getting into all of the details of the book, the "Big Secret" of the book is roughly as follows:
1) Numerous studies have shown that active investors do not beat the market;
2) Index funds beat active managers, have low fees but they are market cap weighted (more weighted towards larger stocks);
3) Market cap weighted indexes by definition own more overvalued stocks and don't own enough undervalued stocks. Think about it this way...if a stock is overvalued it has a higher price than it should and due to the higher price the index owns more shares that would be optimal;
4) Equally weighted indexes outperform market cap weighted indexes but...here is the "secret"...
5) Value weighted indexes (buying stocks based on how cheap they are and how good of a business they are) significantly outperform all of the above. The Value Weighted Index used in the book beat the S&P 500 by an average of 6%-7% per year over the last 20 years.
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