What is a Value Weighted Index?
A Value Weighted Index is a basket of stocks selected based on their valuation metrics rather than their market capitalization (most common type of indexing) or some other method.
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THE BIG SECRET for the Small Investor: A New Route to Long-Term Investment Success
Book Review
There are actually a number of big secrets and for more people than just the small investor. Joel Greenblatt answers the question “how to invest in the stock market.”
Greenblatt provides another easy read crammed with valuable information. With each subsequent book he writes, his message is further and further simplified. His writing style is extremely entertaining, thought provoking, and understandable.
The thought process that Greenblatt is trying to instill into readers is very similar toMargin of Safety written by Seth Klarman. Greenblatt’s approach is certainly very different but at a high level he explains: first, why many individual and professional investors don’t and/or can’t beat the market; second, a philosophy that explains and demonstrates why an individual can beat the market and most professionals; and third, how to easily implement a successful long-term investing strategy.
“THE BIG SECRET for the Small Investor” is a must-read for active and passive investors, individual and institutional investors, pension plans, and yes, even mutual fund companies.
There is a big secret to investing at the beginning of the book and another big secret to investing at the end of the book. Most importantly, however, the entire book explains why others fail and why you can succeed. As Greenblatt explains early on “understanding…is…crucial” (p. 18).
The Big Secret will only make sense if you read the entire book in order to develop a solid understanding and that is really the big secret.
Key concepts discussed:
Book Information
Title: THE BIG SECRET for the Small Investor
Author: Joel Greenblatt
Publisher: Crown Publishing Group, a division of Random House Inc., New York
Publication date: 2011
Number of pages: 156
Review Information
Reveiwer: DeepValueInvestor.com
Date of First Review: April 2011
Updated:
Stars (9/10)
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DeepValueInvestor.com is dedicated to value and deep value investing. Our website has a variety of resources including education, the latest deep value investing news, discussion on value and deep value investing strategies, related book reviews, deep value investing quotes, and our Coattail Corner newsletter that follows selected stock purchases of successful investors.
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When it comes to investing in the stock market, investors have plenty of options:
1. They can do it themselves. Trillions of dollars are invested this way.
(Of course, the only problem here is that most people have no idea how to analyze and choose individual stocks. Well, not really the only problem. Most investors have no idea how to construct a stock portfolio, most have no idea when to buy and sell, and most have no idea how much to invest in the first place.)
2. They can give it to professionals to invest. Trillions of dollars are invested this way.
(Unfortunately most professionals actually underperform the market averages over time. In fact,it may be even harder to pick good professional managers than it is to pick good individual stocks.)
3. They can invest in traditional index funds. Trillions of dollars are also invested this way.(The problem is that investing this way is seriously flawed–and almost a guarantee of subpar investment returns over time.)
4. They can read The Big Secret for the Small Investor and do something else. Not much is invested this way. Yet…
Let top hedge fund manager, Columbia business school professor, former Fortune 500chairman and New York Times bestselling author, Joel Greenblatt, take you on a journey that will reveal the Big Secret for both individual and professional investors. Based on path-breaking new research, find out how anyone can beat the market, the index funds and the experts by following a new approach that relies on the principles of value investing, common sense and quantitative discipline. Along the way, learn where “value” comes from, how markets work, and what really happens on Wall Street. By journey’s end, small investors (and even not-so-small investors) will have found their way to some excellent new investment choices.
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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