Tuesday, January 8, 2019

The Little Book That Still Beats The Market - for my own references....


I just finished reading "The Little Book That Still Beats The Market" - by Joel Greenblatt.


(1) Buying a share in a business means you are purchasing a portion (or percentage interest) of that business. You are then entitled to a portion of that business' future earnings.

(2) Figuring out what a business is worth involves estimating how much the business will earn in the future.

(3) The earnings from your share of the profits must give you more money that you would receive by placing that same amount of money in a risk-free 10-year U.S government bond (for US market).

(4) Stock prices move around wildly over very short periods of time. This does not mean that the values of the underlying companies have changed very much during that same period. In effect, the stock market acts very much like a crazy guy named Mr. Market.

(5) It is good idea to buy shares of a company at a big discount to your estimated value of those shares. Buying shares at a large discount to value will provide you with a large margin of safety and lead to safe and consistently profitable investments.

(6) Paying a bargain price when you purchase a share in a business is a good thing. One way to do this is to purchase a business that earns more relative to the price you are paying rather than less. In other words, a higher earnings yield is better than a lower one.

(7) Buying a share of a good business is better than buying a share of a bad business. One way to do this is to purchase a business that can invest its own money at high rates of return rather than purchasing a business that can only invest a lower ones. In other words, businesses that earn a high return on capital are better than businesses that earn a low return on capital.

(8) Combining points (6) & (7), buying good businesses at bargain prices is the secret to making lots of money.

(9) Most people and businesses can't find investments that will earn very high rates of return. A company that can earn a high return on capital is therefore very special.

(10) Companies that earn a high return on capital may also have the opportunity to invest some or all of their profits at a high rate of return. This opportunity is very valuable. It can contribute to a high rate of earnings growth.

(11) Companies that achieve a high return on capital are likely to have a special advantage of some kind. That special advantage keeps competitors from destroying the ability to earn above-average profits.

(12) Although over the short term Mr. Market may price stocks based on emotion, over the long term Mr. Market prices stocks based on their value.

(13) If you truly understand the business that you own and have a high degree of confidence in your normalized earnings estimates, owning five to eight bargain-priced stocks in different industries can be a safe and effective investment strategy.




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