market folly

Joel Greenblatt is the founder of Gotham Capital and also author of the book The Little Book That Beats the Market.  He recently gave a talk at Google and here are the takeaways:


Joel Greenblatt's Talk at Google

- He thinks the vast majority of investors should index rather than pick stocks.  That said, he doesn't index and Warren Buffett doesn't either.

- Greenblatt said people are still crazy (human behavior) and the market has wild rides (50% drops in recessions, tripling in value afterwards, etc).  So there's an opportunity.  The key is obviously to buy when valuations are below average and sell when they're above average.

- He tells his MBA students at Columbia Business School: "If they do good valuation work, I guarantee the market will agree with them... I just don't know when."

- "Stocks are ownership shares in businesses."  Looks at how relatively cheap they are compared to other businesses, to history, etc.  Measure in absolute and relative value.

- Emphasizes being patient; market oscillates back and forth over the years.  Time horizons are shrinking so we're playing time arbitrage. 

- "Almost never have I bottom-ticked a stock."  That means most of the time he'll be down on a stock at some point.  There's two reasons why: he's either wrong or just needs more time for the thesis to play out.

- Greenblatt also wrote a book called The Big Secret that he joked is still a secret since no one read it.  But he's also authored a wildly popular investing book with a cheesy title: You Can Be a Stock Market Genius

- "To beat the market you have to do something different."

- Runs 100% net long but it's typically achieved via 170% long and 70% short.  They determined the leverage amount based on returns.

- The market's been cheaper 83% of the time based on current valuations.  Based on this, market could see 3-5% returns over the next year and then 8-10% over the next two.  Not a prediction though he said.

- "Stock investing is figuring out what a business is worth and paying less."

- Harped on the importance of compound interest tables.  Start investing as early as possible.

- Thinks there's still a lot of groupthink going on.  If you're good at taking 'unfair bets' in obscure places that other people aren't looking, you can do well.  But eventually you'll have too much money to play in that arena anymore to have it move the needle.

- On Apple (AAPL): "I think it's cheap relative to other choices right now."

- "Your job is to be cold and calculating, and unemotional.  Unfortunately, people are human.  That's good news for us, but the stats are against you."

- "The last man standing is patience.  We call it time arbitrage.  That's in really short supply.  It's not getting better, things are moving faster... and less patience." 

- For more from this investor, we've also posted up Greenblatt's interview with Consuelo Mack

Embedded below is the video of Joel Greenblatt's talk at Google:



We've also posted a bunch of other investor talks at Google, including:

- Howard Marks' talk at Google

- Michael Mauboussin's talk at Google

- Jim Grant's talk at Google