The Little Book that Beats the Market by Joel Greenblatt, Wiley 2006 U.S.$20 155 pages
I would not have read the little book except that the author has been a money manager for some 25 years (managing partner at Gotham Capital) and he taught at Columbia. Ben Graham taught at Columbia too. Greenblatt mentions Graham a few times and Buffett also. All are value investors. I am too: value investing works.
The essence of the author's formula¹ is in italics on page 45: "... stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield), ..." Sound familiar?
We like to buy premium common stocks too. I define great companies as those with a terrific dividend growth record and, to find bargain prices, I use yield. I do not buy high yield stocks, per se, but rather high yield for a particular stock relative to its own average yield. We also use Graham valuation figure (square root of average of the last three years earnings per share, times book value per share, times 22.5) to discover value too.
While the author's basic principles are correct and simple, and will lead to market-beating returns, most people won't follow it. Why?. In an interview in MoneySense magazine, in April of 2006, Greenblat put it this way: "Because it takes three to five years before it starts showing its stuff. Over any one or two year period, it might not work and that is why most people quit."

There is precious little in this little book on dividends. Dividends are mentioned only on page 148 and then just as a value indicator. The author certainly does not believe in holding common stocks for their growing dividends: on page 135, to my horror, he says "Sell each stock after holding it for one year. He does not believe, either, that every stock you buy should pay dividends. Compare this stance to Stephen Jarislowsky views on holding on the top of page 104 of The Investment Zoo...the first four sentences...the ones we memorized. Who's word are you going to take?
This book is American, of course, and the web site it directs you to (magicformulainvesting.com) has American examples...useless with their dollar depreciating so rapidly. However, in April of 2006, MoneySense magazine listed 30 Canadian stocks giving Greenblatt's EBIT divided by Net working capital + net fixed assets and EBIT divided by Enterprise Value. None of the stocks I follow are in the list, for some reason MoneySense omitted utilities and financial stocks, but a couple of good dividend payers that I watch peripherally are listed.

• I loved the author's views on diversification on pages 107, 108 and 109. He begins "How can owning just five to eight stocks possibly be a safe strategy? Think of it this way."...
• In this book, I found four more reasons not to buy mutual funds: pages 74, 114, 104 and 148.
• I also picked out a couple of fine sentences to add to my page on brokers: "If your broker is like the vast majority, he or she has no idea how to help you. Most get paid a fee to sell you a stock or a bond or some other investment product. They don't get paid to make you money." p113

¹ The magic formula, as Greenblat calls it, it also detailed on pages 46, 54, 79, 138 and 147 and the author explains what he means by return on capital and earnings yield in the appendix. Actually, you can tell Greenblatt is a teacher: he explains things well. He also states that "the magic formula strategy requires patience" p 137. Greenblatt maintains that "most individual and professional investors do not have the patience to use them [these magic formula strategies]. It's true.
There's an appendix¹ in this book, but no index.
The last sentence in the book: "Good luck"