In 2005, Joel Greenblatt published The Little Book That Beats the Market, a short and witty tome in which the US investor spelled out his ‘magic formula’ for making above-average returns from shares.
After a brilliant introduction to business, equity markets and valuation, Greenblatt asks the same question he used to put to students in the Columbia University business class he taught. Namely why, in any 12-month period, does a company’s share price tend to swing more wildly than the inherent value of its underlying businesses?
Greenblatt isn’t interested in why the market often seems to lose sight of value, although he ponders that emotion and the difficulty of forecasting and pricing businesses are likely to blame. But while smart and valid answers to the question may exist, he concludes that investors should think less about the why – “who knows and who cares” – and just accept wild swings as an inherent feature of markets.