The Little Book That Still Beats the Market by Joel Greenblatt

Bybenmunoz

The Big Idea: Buy stocks in companies with high earnings yield and high return on capital. (Magic Formula)

  • Classic value investing methodology
  • P/E = stock price / earnings per share
  • Earnings Yield = EBIT / Enterprise Value (Market Cap + Debt – Cash)
  • There will be long periods when growth stocks outperform.
  • This methodology is well-known and alpha has been arbitraged away.
  • Best as an initial screener to start evaluating moat, management, industry.