The Big Secret for the Small Investor: The Shortest Route to Long-Term Investment Success Audible Audiobook – Unabridged
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When it comes to investing in the stock market, investors have plenty of options:
- 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.)
- 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.)
- 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.)
- 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 500 chairman and New York Times best-selling 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.
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|Listening Length||3 hours and 9 minutes|
|Audible.com Release Date||April 05, 2011|
|Publisher||Simon & Schuster Audio|
|Best Sellers Rank|| #89,106 in Audible Books & Originals (See Top 100 in Audible Books & Originals) |
#594 in Investing & Trading
#1,073 in Personal Finance (Audible Books & Originals)
#1,149 in Introduction to Investing
Top reviews from the United States
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"The Big Secret" is a simple and relatively concise view into exactly why the majority of active managers underperform the market averages over time, net of fees; and why disciplined adherence to the proposed solution will likely result in significant out-performance by the small investor. The professional money manager will be equally well served by reviewing the insights into the greatest stumbling blocks obstructing the path to successful money management (as well as suggestions for surmounting and avoiding those obstacles).
The explanation of what makes the value approach work is coupled with the necessary insight into behavioral finance, which together provide one with the necessary perspective for successful money management. It is these very insights into the practical difficulties of money management, as well as into behavioral finance, which virtually ensure the proposed solution will continue working over time; in addition to why it will likely remain "a secret".
But for anyone who has read Greenblatt's other books, this one is a severe disappointment. Here is my outline of the book:
* Everybody selling you stuff in the financial area has incentives that don't line up with yours, so don't fall for their tactics
* High return on capital and earnings yield identify good investments, on average
* I have found a nifty new way to get good returns at low risk, but I'll only give you the 30,000-foot view
* Whatever you do, don't get greedy (invest too high a percentage in stocks) or fearful (invest too small a percentage), especially in reaction to recent results
* But there is nothing you can do with this information since a) it's impractical to do yourself, b) I didn't give you enough information anyway, and c) there are no products available that use my method
Cross referencing back to previous books (especially The Little Book That [Still] Beats the Market) could help more technically minded investors derive the return on capital and earnings yield formulations (they are not straightforward). But I am at a loss to understand how a novice investor would use any of the information in this book, aside from avoiding bad money managers (which I suppose is worthwhile, but isn't the apparent point of the book).
All in all this reads like a book thrown together from pieces here and there and not finished. It's choppy and incomplete, and varies a great deal in tone and intended audience from one passage to the next.
Entirely unexpectedly poor quality from someone as good at what he does.
The only weird thing about this book is that he tries really hard to describe why his last two books might be too complicated for some people. He does this by describing DCF and other investment concepts and then explaining why those concepts are hard. Well... if the reader is a novice, I have a feeling they'll be confused by this discussion. In other words, this book might appear to be geared toward a novice, but I suspect that only the "intermediate" investor who doesn't want to really invest on his own will really get it. If this describes you then this book is for you, and the fact that it's short and to the point should probably be perfect for you. And if you're a novice who's open minded who doesn't want to do any more research than this (and who's willing to gloss over the DCF stuff), this book is perfect for you too.
Note that he doesn't plug his new mutual funds ANYWHERE in the book. (His firm has new funds that apparently invest based on his 'magic formula' method from his last book.) He does provide a new website that he created to go with the book, but even there you have to click through some tabs before you get to his fund. I'm almost surprised he buried them so deep, but I guess he didn't want to make this a plug for his funds.
All in all pretty good. I'm a bit of an investing geek so I would rather try some of the tips in his previous books, but if you really don't want to do that then this, I think, is the only real alternative method of investing.
I think the author wanted to create one for the beginners.
Top reviews from other countries
The key way to value a company is to sum all of the expected earnings over its lifetime, then discount these back to current dollars. But this is essentially a load of guesses; worse, tiny changes in our guesses can result in wildly different estimates of value. We could use alternative methods of valuation e.g. relative value, but these have equally fatal flaws.
So if you are value investor, and have lots of books telling you invest in single stocks via cashflow calculations - you really should bin those books and stop "investing" this way (my conclusion, not his). Because you're "investing" based on guesses, which means you're "investing" using luck. If you are investing in funds where the fund manager does these calculations for you, you are also being unsound because these funds are also investing using luck, because the professional fund manager has to make the same guesses.
He also tells us that indexes based on market cap will systematically buy too much of overpriced stocks, and too little of underpriced stocks; so really we should be using equal weight indexes rather than market cap indexes.
You'll have to read the book to find out his "secret" for the small investor i.e. how to solve the riddle of how to do value investing without buying stocks based on guesses wrapped up as precision calculations; and how to do better than just buying a market-cap index (S&P, Nasdaq, FTSE, ...). But be warned about the dangers of valuing companies. Maybe this explains the genius of Warren Buffett, as he clearly does know how to value individual companies.
I was expecting something new in The Big Secret for the Small Investor, but the truth is that Joel is really re-iterating the same advice he gave in his earlier book. Admittedly, he goes into much more detail about why it is virtually impossible for anyone, including the professionals to accurately value companies, with a view to buying them cheap, together with other interesting peripheral information. But ultimately, his final recommendations for the small investor are based on the same fundamental information that he gave us in the earlier book. But that's not the worst of it. In the introduction he promises that this book will provide a solution for those who want to be hands off, allowing others to do their investing for them - but this solution never materialises and we are simply left with the vague idea that we need to construct our own value weighted index portfolio, without any detailed instructions how to do this. To be fair, it is possible to adopt some of the ideas he mentions via investment products that are available in today's marketplace - but these ideas are not those which he considers to be the best option! If I hadn't read the earlier book, I might be thinking that I had at least learned some valuable information - even if I wasn't quite sure how to implement an investment strategy based on it. But because I have read the earlier book, I'm just disappointed.