OTHER STOCK INVESTMENT APPROACHES

by Ernesto R. Martin



There are other ways to invest in stocks. One was introduced in the 2004 book The Little Book That Beats The Market by Joel Greenblatt, a renowned academic and investor. He recommends a fairly simple investment formula which has had stellar results -- over a 17 year period ending in 2004 it had an average annual return of 30.8% and turned an $11,000 investment into more than $1 million! However, towards the end of the book the author encourages most investors to go with index funds, because such funds have a decent return, while stock picking, even using his formula, requires a lot more patience and few people have the tolerance needed for the huge losses that occur in some years. Plus, the formula has been tested in more recent years and has performed worse than the overall stock market, partly because of a changing investment landscape (in 2004 there was no Facebook, and neither Apple nor Amazon had become the behemoths they are today). If you're still interested in picking stocks (perhaps 10% of your money, with the other 90% in an S&P 500 index fund), this website discusses the formula and its shortcomings, and presents a slightly more complex strategy that has performed significantly better in recent times.