Nuts and Bolts: How I Implement the Greenblatt Strategy

Greenblatt's book is a little vague on the day-to-day mechanics of how and when to buy the recommended stocks. This post explains in step-by-step detail how I've chosen to implement the strategy. This is what I've found is best for my situation -- there are other options that may better suit your particular situation, and your mileage may vary.

1. Open an account at an online discount brokerage that allows for partial purchases. You want someplace cheap, and someplace that will let you purchase specific dollar amounts of a stock, not just specific numbers of shares (so that, for example, you could invest $100 every 2 weeks, regardless of the price of the particular stock). I use FolioFN, but ShareBuilder is another good choice, and there are others out there.
2. Set up automatic deposits into the brokerage. When it comes out of your paycheck, you'll never miss it.
3. Every 2 weeks (or with every paycheck, if you're paid monthly or bi-monthly), pick up a new stock, using the choices listed at the Magic Formula site. You may certainly want to consider what I've chosen, but by all means, pick what you're comfortable with. Remember, these are all "good" stocks, and if you're going to hold 20-30 of them, don't sweat any single pick.
4. Hold each stock for a year. If the stock is down, sell it just before the year is up; if the stock is up, wait until just after the one-year mark (to receive the more favorable 15% long-term capital gains rate).
5. Remember, you're in for the long run. The minimum investment horizon for the plan described in LBTBTM is 3-5 years.
   
6. Finally, don't invest what you can't afford to lose. While I'm understandably excited about how my stocks have been doing, this is "risk capital" -- I'm still putting my "real" savings into a 401(k), in a diversified mix of index funds, bonds, and mortgage securities.