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The latest Graham & Doddsville investment newsletter is out from Columbia Business School.  It features interviews with Gotham Capital's Joel Greenblatt, Loews Corporation, and Royce & Associates.

Greenblatt gave an insightful interview regarding his investment process and below are some of the key takeaways.


Highlights From Joel Greenblatt's Interview


On what kind of stocks he buys nowadays:

"Part of the future is unknowable but there are some instances where you can take a calculated risk/reward bet. One thing I would say is that a common characteristic of many of the stocks that we buy is that everyone hates them.  We do that a lot."


On going long/short:

"When we buy things, we like companies that invest their capital well; they generate large amounts of cash flow relative to the price we're paying.  On the short side, we would like to be short, in general, high-priced, cash-eating companies.  So it is essentially the opposite of our long approach.  You do have to balance your risk, though."


On emphasizing downside risk:

"One of the things I said in You Can Be a Stock Market Genius is if you don't lose money, most of the alternatives are good.  Even if you don't know what the upside is - if you just know there's upside - you can create scenarios where you have an excellent risk/reward.  Positions with limited downside are the types of positions that I have loaded up on in the past.  Not the positions with the biggest payoff.  I could buy a lot knowing that I wouldn't lose much and that there were good possibilities that it was worth a lot more over time.  At the very least, I knew that my downside was well protected and so I could create an asymmetric risk/reward by saying if I don't lose much, there are not many alternatives other than to make money."

This is an important facet of investing and we've previously highlighted previous thoughts from Greenblatt on risk and investment timeframe that are worthwhile.


On how to become a better investor:

"If you want to get good at investing, read a lot and practice a lot."  


For the rest of the interview with Greenblatt, as well as Q&A with Loews and Royce, please see the latest issue of Columbia Business School's Graham & Doddsville embedded below:





If you haven't already, be sure to read Greenblatt's book, You Can Be a Stock Market Genius.  While the title may be a bit cheesy, the book is recommended by most top hedge fund managers.