The Big Secret for the Small Investor - PCC - ebook

When it comes to investing in the stock market,  investors have plenty of options:   1.  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.) 2.  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.) 3.  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.) 4.  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 bestselling 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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Statistics show clearly and definitively investing in the stock market will generate the biggest long-term returns. So what's the best way to invest in the stock market? There are plenty of options:

■ You can do-it-yourself — trillions of dollars are invested this way each year but most investors don't know what they're doing and therefore end up with mediocre results.

■ You can give your money to professionals to invest — trillions flow into managed funds each year but these funds always underperform the market sooner or later.

■ You can invest in index funds — which also attract trillions each year but these funds are guaranteed to underperform over time because of the way they are constructed.

Each of those approaches have their pros and cons but if you genuinely want to maximize your returns, the "Big Secret Investment Strategy" is disarmingly simple yet is guaranteed to generate superior long-term returns. The Big Secret investment strategy has three parts:

Key Thoughts

"For years individual investors have asked me how they should go about investing their savings in the stock market. After all, I'm a longtime business school professor and institutional money manager, and they figure I should know. Yet for years I haven't had a good answer. You see, Wall Street isn't very kind to small investors. While it's true that individual investors have many options, for one reason or another (and usually for one reason and another) most choices aren't very good. Well, with The Big Secret for the Small Investor, I finally have what I think is a good answer to that very important question. And it's an answer that should work well for investors both big and small." — Joel Greenblatt

Part 1

The factual assumptions behind the Big Secret Investment Strategy

Making money over the long haul by investing in the stock market isn't exactly rocket science. In fact, if you understand seven basic assumptions, you're ready to put the Big Secret Investment Strategy to work. The seven factual assumptions you need to understand are:

Assumption 1   The markets are full of intelligent, knowledgeable people

There are so many smart people in the marketplace it is impossible to outsmart them. There are thousands of people who buy and sell stocks all day long. They're knowledgeable and looking for an edge the same way you are. Stock prices always reflect the collective judgment of all these smart people — so it's folly to think you can "beat the market."

With this in mind, the mantra you need to tell yourself every day is:

■ Brains and dedication don't determine investment success. Loads of other people are just as smart and just as committed as I am.

■ Nor can success be found by listening to the experts who go on TV and make their forecasts and predictions. All that generates is noise and confusion. Besides, if these people really knew something good, would they be more likely to tell the world so their strategy doesn't work any more or use it themselves to make some money first? Don't get sucked in.

■ The secret to beating the market is to stick to my simple concepts and use them as a road map. Anyone can follow my system — but most people won't for a variety of reasons and that's why it will work so well for me. I can and will make good investment choices by applying my simple system.

Key Thoughts