If you’ve ever felt like the stock market is rigged for the MBAs and Wall Street pros, Joel Greenblatt’s You Can Be A Stock Market Genius has some reassuring—and hilariously honest—news: you actually have the edge.
“Okay: What’s the catch?” he asks in chapter one. “If it’s so easy, why can’t the MBAs and the pros beat your pants off?” His answer is what makes this book a gem: “The well-heeled Wall Street money managers and the hotshot MBA’s don’t have a chance against you and this book.”
Greenblatt’s key point is that big players are often too constrained—by size, regulations, or career risk—to take advantage of the most profitable market niches. “Poor Bob,” he jokes, describing a friend managing $12 billion, “has to come up with scores of great stock ideas, choose from a limited universe of the most widely followed stocks… and perform in a fish bowl.” You, on the other hand, don’t.
Instead of chasing hot tips or trying to outguess the crowd, Greenblatt suggests a different strategy: go where others aren’t looking. “If you spend your energies looking for and analyzing situations not closely followed by other informed investors, your chance of finding bargains greatly increases.”
He backs this with data, especially around spinoffs—one of his favorite “hidden corners” of the market. According to Greenblatt, “Stocks of spinoff companies… significantly and consistently outperform the market averages.” In fact, a Penn State study found they beat the S&P 500 by 10% annually in their first three years.
Why? Because of “the spinoff process itself,” he explains. “Spinoff stock isn’t sold, it’s given to shareholders who… typically sell immediately without regard to price or fundamental value.” That creates mispricing—and opportunity.
Another lesson Greenblatt hammers home is: don’t over-diversify. “After purchasing six or eight stocks in different industries, the benefit of adding even more stocks to your portfolio… is small,” he writes. In other words, putting all your eggs in a few carefully chosen baskets—after doing the homework—isn’t risky, it’s smart.
At the end of the day, Greenblatt’s philosophy boils down to this: “Your extraordinary profits will not be a result of taking on big risks; they will be the justly deserved pay for doing your homework.”
So if you’re willing to dig a little deeper and think a little differently, you don’t need to be a genius to beat the market. You just need to look in the right places—and hang a right off Wall Street’s well-trodden path.
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