The book will take readers on a step-by-step journey so

that they can learn the principles of value investing in

a way that will provide them with a long-term strategy

that they can understand and stick with through both

good and bad periods for the stock market.

As the Wall Street Journal stated about the original edi-

tion, “Mr. Greenblatt says his goal was to provide

advice that, while sophisticated, could be understood

and followed by his fi ve children, ages six to fi fteen.

They are in luck. His Little Book is one of the best,

clearest guides to value investing out there.”

In 2005, Joel Greenblatt published a book that is al-

ready considered one of the classics of fi nance litera-

ture. In The Little Book That Beats the Market—a New York Times

bestseller with 300,000 copies in print—Greenblatt

explained how investors can outperform the popular

market averages by simply and systematically applying

a formula that seeks out good businesses when they are

available at bargain prices. Now, with a new Introduc-

tion and Afterword for 2010, The Little Book That Still Beats

the Market updates and expands upon the research fi nd-

ings from the original book. Included are data and

analysis covering the recent fi nancial crisis and model

performance through the end of 2009.

In a straightforward and accessible style, the book ex-

plores the basic principles of successful stock market

investing and then reveals the author’s time-tested for-

mula that makes buying above-average companies at

below-average prices automatic. Though the formula

has been extensively tested and is a breakthrough in the

academic and professional world, Greenblatt explains

it using sixth-grade math, plain language, and humor.

He shows how to use his method to beat both the market

and professional managers by a wide margin. You’ll

also learn why success eludes almost all individual and

professional investors, and why the formula will con-

tinue to work even after everyone “knows” it.

While the formula may be simple, understanding why

the formula works is the true key to success for investors.

Jacket Design: Paul McCarthy

Ribbon Image: Michael M. Schwab / Getty Images

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$19.95 USA / $23.95 CAN

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“Simply perfect. One of the most important investment books of the last 50 years!”

—Michael Price

“A landmark book—a stunningly simple and low-risk way to

signifi cantly beat the market!”

—Michael Steinhardt, the Dean of Wall Street hedge fund managers

“This book is the fi nest simple distillation of modern value investing principles

ever written. It should be mandatory reading for all serious investors

from the fourth grade on up.”

—Professor Bruce Greenwald, Director of the Heilbrunn Center for Graham and Dodd Investing, Columbia Business School

“The book unquestionably makes good on its promises.”

—SmartMoney

“Greenblatt delivers admirably . . . it contains one of the clearest, most entertaining

explanations you’ll ever see of the ideas underlying value investing.”

—International Herald Tribune

C O N T I N U E D O N B A C K F L A P

C O N T I N U E D F R O M F R O N T F L A P

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JOEL GREENBLATT is the

founder of Gotham Capital, an invest-

ment partnership that achieved 40%

annualized returns for the twenty years

after its founding in 1985. He is a

professor on the adjunct faculty of Columbia Business

School, the Chief Strategist for Formula Investing,

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 an MBA from the Wharton School.U

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Praise for

T H E L I T T L E B O O K T H A TT H E L I T T L E B O O K T H A T BEATSBEATS T H ET H E MARKETMARKET

$LITTLE BOOK

BIG P R O F I T S®

JOEL GR EENBLAT TJOEL GR EENBLAT TF O R E W O R D B YF O R E W O R D B Y A N D R E W T O B I A SA N D R E W T O B I A S

Updated with New Introduction and Afterword

NEW YORK TIMES

BESTSELLER

NEW YORK TIMES

BESTSELLER

“The best book on the subject in years.” —

“The best book on the subject in years.” —Financial Times

Financial Times

“ The Little Book [That Beats the Market ] is one of the best, clearest guides to value investing out there.”

—The Wall Street Journal

$

ffirs.qxd 7/30/10 2:01 PM Page ii

THE LITTLE BOOK

THAT STILL BEATS THE MARKET

THE LITTLE BOOK

ffirs.qxd 7/30/10 2:01 PM Page i

ffirs.qxd 7/30/10 2:01 PM Page ii

THAT

STILL BEATS THE MARKET

JOEL GREENBLATT

John Wiley & Sons, Inc.

THE LITTLE BOOK

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Copyright © 2010 by Joel Greenblatt. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or trans-mitted in any form or by any means, electronic, mechanical, photocopying, record-ing, scanning, or otherwise, except as permitted under Section 107 or 108 of the1976 United States Copyright Act, without either the prior written permission ofthe Publisher, or authorization through payment of the appropriate per-copy fee tothe Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,(978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requeststo the Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011,fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warrantieswith respect to the accuracy or completeness of the contents of this book and specif-ically disclaim any implied warranties of merchantability or fitness for a particularpurpose. No warranty may be created or extended by sales representatives or writ-ten sales materials. The advice and strategies contained herein may not be suitablefor your situation. You should consult with a professional where appropriate. Nei-ther the publisher nor author shall be liable for any loss of profit or any other com-mercial damages, including but not limited to special, incidental, consequential, orother damages.

For general information on our other products and services or for technical support,please contact our Customer Care Department within the United States at (800)762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more informationabout Wiley products, visit our web site at www.wiley.com.

ISBN 978-0-470-62415-9 (cloth); 978-0-470-92671-0 (ebk); 978-0-470-92672-7 (ebk)

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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To my wonderful wife, Julie, and our five magnificent spin-offs

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Contents

Acknowledgments ix

Foreword by Andrew Tobias xiii

Introduction to the 2010 Edition xvii

Introduction to the Original Edition xxi

Chapter One 1Chapter Two 9Chapter Three 17Chapter Four 27Chapter Five 39Chapter Six 51Chapter Seven 61

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Chapter Eight 71Chapter Nine 81Chapter Ten 93Chapter Eleven 105Chapter Twelve 115Chapter Thirteen 127

Step-by-Step Instructions 137

Afterword to the 2010 Edition 145

Appendix 165

[vi i i ] CO N T E N TS

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Acknowledgments

I AM GRATEFUL TO THE MANY FRIENDS, colleagues, andfamily who have contributed to this project. In particular,special thanks are due to my partners at Gotham Capital,Rob Goldstein and John Petry. Not only are they the truecoauthors of the Magic Formula study that appears in thisbook, but it is also a rare privilege to be associated withsuch brilliant, talented, and generous people. Their con-tributions to this book—and to the success of GothamCapital—cannot be overstated and are appreciated morethan they know. I would also like to give special thanks toEdward Ramsden at Caburn Capital for his extraordinarilyinsightful comments, suggestions, and editing work; toNorbert Lou at Punchcard Capital, particularly for his

�

flast.qxd 7/29/10 11:20 AM Page ix

inspiration and suggestions for Chapter 9; and to PatrickEde at Gotham Capital for his major contributions to theMagic Formula study, for his intelligent and helpful comments, and for his editing talents. In addition, mybrother, Richard Greenblatt at America Capital, deservesa major part of the credit for being my editor-at-large, forhis many good ideas, for his numerous contributions toeach chapter, and especially for his encouragement withthis project and throughout my life.

I am also grateful for the many helpful contributionsand inspiration provided by Dr. Sharon Curhan (my sister,and my favorite artist), Dr. Gary Curhan, Joshua Curhan,Justin Curhan, Linda Greenblatt Gordon at Saddle RockPartners, Michael Gordon, Bryan Binder at Caxton Asso-ciates, Dr. Susan Binder, Allan and Mickey Greenblatt(my wonderful parents), Dr. George and Cecile Teebor(the famous in-laws), Ezra Merkin at Gabriel Capital, RodMoskowitz, John Scully, Marc Silbert, David Rabinowitzat Kirkwood Capital, Larry Balaban, Rabbi Label Lam,Eric Rosenfeld at Crescendo Partners, Robert Kushel (mybroker at Smith Barney), Dan Nir at Gracie Capital,Brian Gaines at Springhouse Capital, Bruce Newberg(who got me started), Matthew Newberg, Rich Pzena at Pzena Investment Management, and Adam Barth,David Pecora, and Yury Kholondyrev at Gotham Capital.Special thanks to David Pugh, my editor at John Wiley,

[x ] AC K N OW L E D G M E N TS

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and Sandra Dijkstra, my literary agent, for their encour-agement and enthusiastic support of this project. Thankyou also to Andrew Tobias for graciously writing the fore-word and for being a good friend.

I would also like to thank my two oldest children,Matthew and Rebecca Greenblatt, for being willing stu-dents and readers (and for laughing at most of the jokes).To my three youngest children, Melissa, Jonathan, andJordan, thank you for your inspiration. And to all thekids, thank you for the joy you bring each day. Thank youalso to my beautiful wife, Julie, for her sage advice withthis book, and in life, for her love and support and foreach precious day together.

AC K N OW L E D G M E N TS [x i ]

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Foreword

THE BEST THING ABOUT THIS BOOK—from which Iintend to steal liberally for the next edition of The OnlyInvestment Guide You’ll Ever Need—is that most peoplewon’t believe it. Or, believing it, won’t have the patience tofollow its advice. That’s good, because the more peoplewho know about a good thing, the more expensive thatthing ordinarily becomes . . . bye-bye bargain.

Yet unlike most “systems” meant to exploit anomaliesin the market, Joel Greenblatt’s simple notion will likelyretain at least a good deal of its validity even if it becomeswidely followed.

I don’t want to spoil the surprise—the book is shortenough as it is. My role here is simply to introduce you to

�

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the author, so you have some sense of just how far you cantrust him.

I’ve known Joel for decades. He is really smart, reallymodest, really well intentioned, and—here is the unusualpart—really successful. (I mean: really successful.)

More to the point, his success has come from shrewdinvesting (not from selling books).

He is also funny. I read the first couple of chapters ofthis book to my 11-year-old nephew, Timmy, and we bothenjoyed it. Timmy, with no investable funds that I knowof, then fell asleep as I raced to the end, mentally rejig-gering my retirement plan.

Let me tell you this much: In the beginning, therewere mutual funds, and that was good. But their sales feesand expenses were way too high. Then came no-loadfunds, which were better. They eliminated the sales fee,but were still burdened with management fees and withthe tax and transactional burden that comes from activemanagement. Then came “index funds,” which cut fees,taxes, and transaction costs to the bone. Very, very good.

What Joel would have you consider, in effect, is anindex-fund-plus, where the “plus” comes from includingin your basket of stocks only good businesses selling at lowvaluations. And he has an easy way for you to find them.

Not everyone can beat the averages, of course—by def-inition. But my guess is that patient people who follow

[x iv ] FO R E WO R D

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Joel’s advice will beat them over time. And that if millionsof people should adopt this strategy (Vanguard: please hurryup and offer a low-priced fund like this), two things will hap-pen. First, the advantage of investing this way will diminishbut not disappear. Second, stock market valuations willbecome ever so slightly more rational, making our capitalallocation process ever so slightly more efficient.

Not bad work for a skinny little book.Now, gather ye what 11-year-olds ye may, and dive in.

—Andrew Tobias, author ofThe Only Investment Guide You’ll Ever Need

FO R E WO R D [xv ]

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Introduction to the 2010 Edition

WELL, IT’S BEEN MORE THAN FIVE YEARS since I wrotethe original edition of The Little Book That Beats theMarket. While I very much enjoyed writing the book, I wasn’t expecting much. My first book, written in the 90s,was only a modest success (which is to say it bombed pretty badly). Only one publisher (thank you, David Pugh atWiley!) was willing to publish my next attempt, whichturned out to be the first edition of The Little Book. Witha microscopic advance payment (darn you, David Pugh atWiley!), and after factoring in agent fees, taxes, and the

�

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usual shipping and handling charges, I didn’t expect tolose too much on the effort. To my happy surprise, thebook ended up selling 300,000 copies worldwide and hasnow been translated into 16 different languages (151/2 ofwhich, unfortunately, I do not understand).

My goal in writing the book was fairly straightfor-ward. The world of finance, particularly the stock marketpart, is intimidating to many people. Yet, investment deci-sions obviously play a huge role in determining futuresecurity, retirement options, and the ability to provide forloved ones. Since the stock market is such an importantcomponent in most people’s investment portfolios, I wanted to write a short, accessible guide that not onlyexplained things in language that even my kids couldunderstand but also provided a great option for manyinvestors.

Shortly after finishing the first edition of The Little Book,though, I had a bit of a panic attack. What if individualinvestors actually followed my advice? What if they believedand understood the logic of the “magic formula” provided inthe book but then didn’t calculate the formula correctly orused poor data sources found free on the Internet? I hadvisions of a dad or grandma I was trying to help actually end-ing up losing some of their hard-earned savings by not hav-ing the proper resources to implement the strategy. So, we

[xv i i i ] IN T RO D U C T I O N TO T H E 2010 ED I T I O N

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quickly put together magicformulainvesting.com as a freeresource for readers of the book that both did the calcula-tions correctly and used a high-quality source for the data.This resource remains free, and I sincerely hope that in con-junction with reading and understanding the book, it willcontinue to serve as a great help to past and future readers.At the very least, having the web site gave me one less thingto worry about over the last five, often interesting, years.

Investing is hard. That’s why having a disciplined,methodical, long-term investment strategy that makessense is essential to making it through and being success-ful in almost any market environment. But it can’t justmake sense; it must make sense to you. Having a deep under-standing is the only way to stick with a long-term strategythat might not work over shorter time periods.

Toward that goal, I have added an Afterword to this2010 edition. The Afterword discusses events, results, and lessons learned since the original edition was publishedin 2005. And the good news is this: Things often have away of looking a bit different than we’ve seen before (andsometimes they even might be!). It’s just that the lessonsand the principles from the original Little Book remain thesame. Nevertheless, it’s always helpful to review and learnthem again. I hope this addition to this edition helps.Good luck.

IN T RO D U C T I O N TO T H E 2010 ED I T I O N [x ix ]

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