The Little Book That Beats the Market
I can't remember exactly how I came across this book but I remember looking into the Greenblatt formula in the past. I decided to read this book because I wanted to find out the origins of this formula that could be used to "beat the market". Here's a short synopsis from .Goodreads
In The Little Book, Joel Greenblatt, Founder and Managing Partner at Gotham Capital (with average annualized returns of 40% for over 20 years), does more than simply set out the basic principles for successful stock market investing.
He provides a "magic formula" that is easy to use and makes buying good companies at bargain prices automatic ... [and] explains it using 6th grade math, plain language and humor. You'll learn how to use this low risk method to beat the market and professional managers by a wide margin ... how to view the stock market, why success eludes almost all individual and professional investors, and why the formula will continue to work even after everyone "knows" it.
At just under 200 pages, this was a short and easy read. Concepts and metrics are explained in simple language and the author provides definitions and examples of investing terms like Earnings Yield and Return on Capital.
Sure, the book contains actionable steps that you can take to use their "magic formula" to pick stocks to buy. But does it make sense to follow the instructions in the book word for word? In my opinion it is debatable just how well they translate into real application. For a supposedly simple formula, there are many restrictions and exclusions involved, such as "exclude all foreign companies from the list" or "eliminate all utilities and financial stocks".
Companies with a high return on capital and/or assets and high earnings yield are more likely to grow sustainably and continue to do well.
The "magic formula" is not a magic wand that will identify the winners from the losers. Rather, it uses a ranking system to identify companies that are more likely to perform better than their peers and works on the average performance of these selected stocks.
For the formula to work, stocks are held for a period of one year and a re-ranking before the second year is used to decide which stocks should get replaced with stocks that are more highly ranked based on current data.
In a nutshell, this is an ELI5 (Explain Like I'm 5) book. I would recommend this to beginner investors who find the study of investing concepts without context very dry. Or if you're not sure what financial metrics to consider when picking stocks, this book will provide one perspective from the lens of Greenblatt's magic formula.
My rating for The Little Book That Beats the Market:
The Singapore Permanent Portfolio
Written by Alvin Chow from Dr Wealth, this book is based off the Permanent Portfolio devised by Harry Browne in the 1980s. I picked it up because I was interested to see how the Permanent Portfolio would do in this current downturn. Book summary from Kinokuniya
A lifetime of savings can be ruined in an instant if you aren’t careful when you invest. The Permanent Portfolio is a concept that can grow and protect your money safely, simply and stably.
This book tackles the tactical aspects of the Permanent Portfolio, such as the buying and selling of certain products as well as the rebalancing process, all explained as simply as possible so that readers can understand how to implement the Portfolio for themselves.
It was interesting to read a book about investing that is written for a local audience. This is a short read, easy to understand and to the point which I appreciated.
Although the book was published in 2015, the concepts are still relevant if you plan to build a permanent portfolio of your own. Since the book is written for a local audience, suggested steps are relatable and take into consideration local policies like CPF and Government bonds.
A permanent portfolio consists of four asset classes at equal proportions: Stocks, Bonds Gold and Cash and is expected to deliver decent returns (i.e. average) with lower drawdown during an economic downturn as compared to say, a 100% equity portfolio.
When building a permanent portfolio, the geographic exposure of each asset class should be comparable. For example, if you're investing in an S&P500 ETF for the Stocks component, your Bonds component should also be US focused.
The book provides a working understanding of the Permanent Portfolio such that readers can start thinking about how they want to build their own permanent portfolio. There are graphs and case studies that are useful for reference but given that the data points are outdated, I don't think that it is necessary to read to the book to start building your own permanent portfolio. There is also plenty of information on the internet about the permanent portfolio that one can refer to in lieu of the book.
Far more interesting than the book is Dr Wealth's ongoing simulation of their permanent portfolio and how it does in current market conditions - https://www.drwealth.com/singapore-permanent-portfolio-performance/. Since the simulation started in 2012, the current downturn is the worst that the that the portfolio simulation has seen so far. Unfortunately, the data points have not been updated since Apr 2018.
My rating for The Singapore Permanent Portfolio:
|Don't bother, there are better books out there.|
|Not bad, but not great either. Skip this unless you have time to kill.|
|Decent content with some useful takeaways.|
|Great content that is relevant and insightful.|
|Simply amazing Highly recommended and a must read!|