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Investor Psychology

A So-So Sequel

A well-known bargain hunter comes up short in trying to explain his craft.

Sequels are tough to pull off. For every The Godfather: Part II, there's a Rocky II. The rule holds true for investing books as well. Case in point: The Little Book of Value Investing, by Christopher Browne. It's packaged as a follow-up to The Little Book That Beats The Market, a best seller by Joel Greenblatt. But Browne's slim volume lacks Greenblatt's clarity and simple stock-picking approach.

The author, a managing director at Tweedy, Browne, which specializes in bargain-priced stocks, treads on familiar turf. He discusses the merits of buying stocks of good companies on sale and describes the many statistics that investors can use to tell if they have found a bargain. And he lists 16 questions they should ask before buying a stock. But Browne lets his readers figure out how to apply his general advice.

Greenblatt's approach is more clear-cut. He boils down the plethora of investment measures to two vital variables. Return on capital is key, he says, because successful companies reinvest their profits at high rates of return. His other yardstick is earnings yield, the inverse of the price-earnings ratio. Greenblatt says you should rank stocks on the basis of those stats and invest in ones with the best combined scores. Then, replenish your portfolio each year with high-scoring stocks. Greenblatt's Web site,, calculates stock ratings free.

The Little Book of Value Investing is not without merit. It offers a breezy overview of how to hunt for stocks of high-quality companies selling at cheap prices. At 176 pages, you can plow through it in a couple of hours. That's a better use of your time than watching a Rocky sequel.