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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market -- Ignore unavailable to you. Want to Upgrade?

To: David Bogdanoff who wrote (65)	2/7/2006 7:44:33 AM
From: Dave	Respond to of 218

The answer, to put simply, is no. The "Little Book" offers a simplistic way to build a portfolio. Mr. Greenblatt, in his book, states that he has backtested the theory and that, on average, a portfolio selected and constructed using this methodology will outperform the market.

To: David Bogdanoff who wrote (65)	2/7/2006 7:54:15 AM
From: Stewart Whitman	Respond to of 218

Does Greenblatt's method make allowances for different industries wrt macroeconomic trends? No. It does recommend you eliminate choices like financials that are more interest rate sensitive and focus on services or manufacturers. Is it logical to have one formulaic set of criteria apply equally to all industries and sectors? Perhaps. In as much as every business can be represented by its trailing twelve month's balance sheet and income statement, and every business has capital requirements, and every business attempts to produce an operating profit, and every business uses its profit to expand or returns its profit to investors in some efficient manner, and you should buy business that are better when they are cheap, then it is logical. If you buy the 20 or 30 top choices, at least right now, it seems like you are getting a relatively diverse set of stocks. Though I can't say what the choices were in the past. If you use it as a screen, then the question becomes less "is it logical" and rather "is it a good starting point". So far, it seems reasonable, especially for stocks with larger capitalization.

To: David Bogdanoff who wrote (65)	2/7/2006 8:55:27 AM
From: Mark Marcellus	Read Replies (1) \| Respond to of 218

I recall that such an approach was used by O'Shaughnessy per his book "What Works on Wall Street" without notable success over the years. At least I don't see him interviewed on tv anymore Greenblatt doesn't name him explicitly, but I believe that O'Shaughnessy is the unnamed money manager Greenblatt uses as an example in his book. According to Greenblatt this individual did a major study of what has worked historically, built some funds based on what he found, and promptly underperformed for three years. He finally threw in the towel and sold the funds. Since then, following the same strategies, these funds have been among the top performers.

To: David Bogdanoff who wrote (65)	2/7/2006 9:01:09 PM
From: Shane M	Read Replies (1) \| Respond to of 218

Does Greenblatt's method make allowances for different industries wrt macroeconomic trends? Like others have said, no special consideration other than exclude financials, utilities, and ADRs. = = = One of the biggest problems I'm having is his urging at the end of the book to just believe that it works without wanting a better understanding of why it works. He didn't even walk through one real life example of why he thinks companies like this are great investments, or discuss some of the confusion with the ROC calc. Why not use a more traditional return on total capital calc instead? When some ROC calcs are coming back over 100% (or over 1000%) something needs explaining. Very small denominators are possible. I've got the older book just now from the library and hope it explains some things better. I'm also going to look at Stew's recommendation to add some other assets to the denominator of the ROC calc to see if it makes a difference. I just don't see why the difference in current assets less liability should be central to the ROC result when there's so much more to consider. Shane