Book Review: The Little Book That Beats the Market — A Simple Formula Singapore Investors Can Actually Stick To
Book Review: The Little Book That Beats the Market — A Rules-Based System That Stops You From Self-Sabotage (Singapore Investor Edition)
A simple explanation of Joel Greenblatt’s “Magic Formula” — and why discipline (not brilliance) is what most portfolios are missing.
Key Takeaways (If You Only Have 30 Seconds)
- Most investors fail on behaviour, not IQ: they abandon strategies after short-term pain.
- The Magic Formula is a discipline machine: it forces you to buy good businesses at good prices — repeatedly.
- It targets two things that matter: “How good is the business?” + “How cheap is the price?”
- It works because it feels uncomfortable: you will often be buying what’s unpopular.
- Singapore investors over-focus on dividend yield: Greenblatt pushes you back to return on capital.
- Annual rebalancing prevents emotional baggage: no “hope holding”, no “falling in love” with a stock.
- The hardest part is not the formula: it’s surviving 12–36 months of looking wrong.
Book Quick Facts
- Author: Joel Greenblatt
- Who it’s for: DIY investors who want a simple, rules-based approach (and are willing to be patient)
- Reading difficulty: Easy (the logic is simple; execution is hard)
- Core theme: Buying good companies at good prices using a repeatable ranking system
- Best for: Working professionals, systematic value investors, investors who want fewer decisions
1. What This Book Is Really About
Let’s be blunt: most Singapore investors don’t fail because they lack intelligence.
They fail because they lack discipline.
You already know the familiar mistakes:
- panic-selling at the bottom,
- buying whatever is hot on Telegram,
- abandoning a strategy after one bad quarter,
- chasing dividends at the wrong time,
- overpaying for “quality,”
- holding losers for too long.
Here is the uncomfortable truth: discipline is often more important than stock-picking skill.
That is why Joel Greenblatt’s The Little Book That Beats the Market has become iconic. It does not try to make you “smarter”. It tries to make you consistent.
The core idea is simple:
- remove emotion,
- force a repeatable process,
- buy good businesses at good prices,
- rebalance on a fixed schedule,
- ignore noise.
Greenblatt’s promise is not that you will win every year.
It’s that a rules-based approach gives you a fighting chance to outperform over long periods — because most investors cannot follow simple rules for long enough.
If you want to save pocket money, the trick is not finding a “secret coin” — it’s having a rule like “save $2 every day no matter what.” Greenblatt’s formula is like that: boring rules that beat mood-based decisions.
- A framework that reduces decision fatigue (fewer “should I buy/sell?” moments).
- A filter that avoids low-quality businesses masquerading as “cheap”.
- A behavioural system designed to protect you from your own impatience.
2. Why It Matters for Singapore Investors
Singapore investors face structural and psychological challenges that make a rules-based approach even more valuable.
SGX has fewer obvious “quality compounders”
Many SGX counters are mature, cyclical, or structurally weak. A systematic screen that prioritises business quality (not just cheapness) can reduce value-trap exposure.
Dividend obsession can hide poor economics
High yield does not automatically mean “good investment.” Sometimes it signals a stressed business or a market that expects decline. Greenblatt shifts attention back to profitability and efficiency.
We are highly sentiment-driven
MAS announcements, interest rate narratives, REIT chatter, and headline cycles can push investors into emotional trades. Rules help you ignore noise.
Complexity is often a trap
Many people feel “smart” when their strategy is complicated. Greenblatt’s slap of simplicity is the point: buy good companies at good prices, repeat, and stay patient.
Time is a real constraint
This book is designed for working adults who want a method without becoming full-time analysts. That makes it appealing for busy professionals and parents who still want a disciplined approach.
3. The Big Ideas (Explained Clearly)
Most Amazon reviews misunderstand what this book is trying to do.
Misconception: “It’s too simple to work.”
Simplicity is not the weakness. Simplicity is the edge — because most people cannot follow simple rules through discomfort.
Misconception: “It only works in the U.S.”
The principles are universal: (1) buy higher quality businesses, (2) don’t overpay. Implementation details differ by market, but the underlying logic is not uniquely American.
Misconception: “Backtests aren’t real life.”
Greenblatt addresses this: multi-year underperformance can happen. That is exactly why many investors quit early — and why a disciplined minority can benefit.
Misconception: “This is a shortcut to picking the next big winner.”
Wrong. This is a behavioural solution to a behavioural problem. It is designed to stop you from sabotaging your portfolio with impulse decisions.
4. Key Mental Models / Frameworks
The Magic Formula uses two metrics:
- Earnings Yield (how cheap the stock is)
- Return on Capital (how good the business is)
You rank stocks by both metrics, add the ranks, and buy the top basket. The simplicity is intentional.
Metric 1: Earnings Yield (EBIT / Enterprise Value)
This tries to measure how cheap the business is relative to operating earnings, while reducing distortions from capital structure.
Metric 2: Return on Capital (EBIT / (Net Working Capital + Net Fixed Assets))
This is a “quality” proxy — how efficiently the business turns capital into operating profit.
In simple terms:
- earnings yield tells you “price attractiveness”,
- return on capital tells you “business attractiveness”.
Imagine two lemonade stalls. One makes $10 profit using $20 of equipment (very efficient). The other makes $10 profit using $200 of equipment (less efficient). Greenblatt wants the first kind of stall — and he wants to buy it at a good price.
Annual rebalancing (the behavioural “engine”)
You refresh the basket on a schedule. This is important because it:
- prevents you from “hope holding” losers,
- prevents you from “marrying” a stock,
- reduces the temptation to react to news.
5. How to Apply This to SGX Investing
Here’s a practical way Singapore investors can think about applying the idea without turning it into a complicated project.
Start with principle, not perfection
The principle is: prioritise profitable businesses and avoid overpaying. Even if you don’t follow the exact formula mechanically, you can use it as a screening discipline.
Use sensible filters for SGX realities
- Liquidity matters: avoid names where you cannot enter/exit responsibly.
- Governance matters: a cheap stock with weak governance can stay cheap for a long time.
- Balance sheet survival matters: high ROC means little if leverage can blow up the equity.
- Don’t ignore debt just because a screen looks “cheap”.
- Be careful with “one-off” earnings or temporary margin spikes.
- Watch for incentives (rights issues, dilutive acquisitions, sponsor behaviour).
- Prioritise businesses with durable cash flow, not just reported profit.
Use it as a behavioural “guardrail”
If you are prone to chasing what’s hot, the best use of this book is as a personal rule-set that prevents impulse buying.
6. What I Agree With (and What I Don’t)
What I agree with: the formula’s greatest gift is behavioural. It reduces emotional decision-making and creates a repeatable process that most investors never sustain.
What I would be careful about: blindly applying any formula without context can create unintended risks — especially in smaller markets where liquidity, governance, and accounting quality vary widely.
The healthy approach is to treat the Magic Formula as:
- a disciplined screening logic, plus
- a sanity check on balance sheet survival and governance.
7. Who Should Read This (and Who Should Not)
Who should consider it
- working professionals with limited time,
- DIY investors who want rules over narratives,
- investors who admit they struggle with discipline,
- value investors who want a systematic framework,
- investors willing to measure results over years, not months.
Who should not use it
- day traders and momentum chasers,
- people who monitor portfolios daily and react emotionally,
- investors who expect immediate outperformance,
- anyone unwilling to tolerate multi-year underperformance.
The Magic Formula is a long-term discipline — not a quick-money hack.
8. Practical Action Steps (Checklist)
- Pick a screener tool and practise finding companies with strong return on capital and reasonable valuation.
- If using SGX, add common-sense filters (liquidity, governance, balance sheet strength).
- Start small: allocate a modest portion first to test whether you can stick with the process.
- Commit to an annual review schedule (not monthly tinkering).
- Journal the rules you will follow when it underperforms (because it will, sometimes).
- Review outcomes over 3–5 years, not 3–5 months.
The formula works — if you work it.
9. My Overall Verdict
The Little Book That Beats the Market is one of the highest “ROI per page” books for retail investors — not because the formula is mysterious, but because it forces a repeatable discipline most people never sustain.
Overall: 45/50 — a simple system Singapore investors can actually stick to, if they are willing to be patient.
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10. FAQ (Singapore Edition)
Is this book useful if I mainly invest in SGX dividend stocks and REITs?
Yes. Even dividend portfolios benefit from focusing on business quality and not overpaying. The return-on-capital lens is a useful discipline, especially against yield traps.
Do I need to follow the Magic Formula exactly?
Not necessarily. Many readers use it as a screening discipline and combine it with common-sense checks (balance sheet strength, governance quality, liquidity).
What is the hardest part of using this approach?
Sticking with it when it underperforms for a period. The “edge” is behavioural patience, not a secret equation.
Should beginners use this?
Beginners can benefit from the simplicity, but they should still learn basics like financial statement reading and risk management. A formula is not a substitute for understanding.
What is the single most important lesson?
You don’t need to be brilliant to do well — you need a process you can follow consistently through discomfort.
HenryT is a Fellow Chartered Accountant (FCA) based in Singapore and the writer behind The Accounting Investor. He combines professional accounting training, corporate finance experience and personal dividend investing to help everyday investors read financial statements with confidence.
Disclaimer
This article is for education and general information only. It does not constitute investment, legal, tax or any other form of professional advice, and it is not a recommendation to buy, sell or hold any securities mentioned.
My sole intent is to help readers learn how to read financial statements and think more clearly about businesses. Please do your own research or consult a licensed financial adviser before making any investment decisions. I may or may not hold positions in the securities discussed at the time of writing and am under no obligation to update this article.
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