@QCompounding: Joel Greenblatt averaged 40% a...
@QCompounding
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May 23, 2025
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Joel Greenblatt averaged 40% annual returns.
Not once. Not twice.
But for over 20 years!
He shared his exact method in The Little Book That Still Beats the Market.
Here are the 10 biggest lessons:
Not once. Not twice.
But for over 20 years!
He shared his exact method in The Little Book That Still Beats the Market.
Here are the 10 biggest lessons:
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1. Stocks arenât lottery tickets
Theyâre pieces of real businesses.
Owning shares means owning a slice of future profits.
That changes how you think about investing.
Theyâre pieces of real businesses.
Owning shares means owning a slice of future profits.
That changes how you think about investing.
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2. The market is moody
One day a stock is âhot.â Next week, itâs trash.
But businesses donât change that fast. Prices do.
And thatâs your edge.
One day a stock is âhot.â Next week, itâs trash.
But businesses donât change that fast. Prices do.
And thatâs your edge.
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3. Good investing is boring
Greenblatt didnât chase trends.
He didnât time the market.
He used a formula. Same thing, year after year.
And it crushed 99% of the pros.
Greenblatt didnât chase trends.
He didnât time the market.
He used a formula. Same thing, year after year.
And it crushed 99% of the pros.
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4. Buy great companies
How? Look for businesses with high Return on Capital.
These are companies that turn $1 into $1.20, $1.40 or more.
Thatâs what you want to own.
How? Look for businesses with high Return on Capital.
These are companies that turn $1 into $1.20, $1.40 or more.
Thatâs what you want to own.
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5. But donât overpay
Even great businesses can be terrible investmentsâŚ
if you pay too much.
So Greenblatt added a second filter: Earnings Yield.
(Profits relative to price.)
Even great businesses can be terrible investmentsâŚ
if you pay too much.
So Greenblatt added a second filter: Earnings Yield.
(Profits relative to price.)
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6. The Magic Formula = quality + cheap
Step 1: Rank all companies by Return on Capital.
Step 2: Rank them by Earnings Yield.
Step 3: Buy the top 20â30 on the combined list.
Hold. Rebalance yearly. Thatâs it.
Step 1: Rank all companies by Return on Capital.
Step 2: Rank them by Earnings Yield.
Step 3: Buy the top 20â30 on the combined list.
Hold. Rebalance yearly. Thatâs it.
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7. You will doubt the formula
It underperforms sometimes.
People will call it outdated or broken.
But thatâs the test: Can you stick with it?
It underperforms sometimes.
People will call it outdated or broken.
But thatâs the test: Can you stick with it?
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8. Most investors fail this test
They get bored, they panic.
They quit when it doesnât work instantly.
And thatâs why this still works.
They get bored, they panic.
They quit when it doesnât work instantly.
And thatâs why this still works.
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9. Simplicity beats complexity
Wall Street loves fancy models and complicated strategies.
But Greenblatt proved:
A simple system + discipline > 99% of funds.
Wall Street loves fancy models and complicated strategies.
But Greenblatt proved:
A simple system + discipline > 99% of funds.
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10. You can do this
You donât need to be a math genius.
You just need to trust the process.
And let the formula do its thing.
You donât need to be a math genius.
You just need to trust the process.
And let the formula do its thing.
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11. Summary
Recap: The Magic Formula =
âď¸ Great companies
âď¸ Bought cheap
âď¸ Held long-term
âď¸ With zero emotion
Itâs not sexy. But it works.
Recap: The Magic Formula =
âď¸ Great companies
âď¸ Bought cheap
âď¸ Held long-term
âď¸ With zero emotion
Itâs not sexy. But it works.
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Greenblatt likes to keep things simple, just like me.
That's why I'd recommend a summary of all his public writings: compounding-quality.kit.com/e3f59a4723
That's why I'd recommend a summary of all his public writings: compounding-quality.kit.com/e3f59a4723