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Book Summary of The Big Secret for the Small Investor: A New Route to Long-Term Investment Success by Joel Greenblatt

 If you are a small investor who wants to achieve long-term investment success, you might be interested in reading The Big Secret for the Small Investor: A New Route to Long-Term Investment Success by Joel Greenblatt. In this book, Greenblatt reveals a simple and effective way to 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.


Greenblatt starts by explaining why value investing works and how it can help you find undervalued stocks that have a high potential for growth. He then shows why most active fund managers fail to beat the market and why most market-cap-weighted index funds are flawed and inefficient. He argues that both methods suffer from buying too many overpriced stocks and selling too many bargain stocks, which leads to underperformance and higher risk.


The big secret that Greenblatt reveals is that there is a better way to invest: using fundamentally weighted index funds. These are index funds that weight stocks based on their economic size, rather than their market price. This way, they avoid overpaying for popular stocks and underpaying for unpopular stocks, and they capture more of the value premium that exists in the market. Greenblatt provides evidence that fundamentally weighted index funds have outperformed market-cap-weighted index funds over long periods of time and across different markets.


Greenblatt also explains how you can create your own fundamentally weighted index fund using a simple formula that ranks stocks based on their earnings yield and return on capital. He shows how this formula can help you find the best value stocks in any market and how you can use it to build a diversified portfolio that beats the market with less risk and volatility.


The Big Secret for the Small Investor is a concise and accessible book that offers practical advice and insights for anyone who wants to achieve long-term investment success. It is written in a clear and engaging style, with examples, anecdotes, and humor. It is a must-read for anyone who wants to learn how to invest smarter and better.

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