Investing Wisdom From Joel Greenblatt


Joel Greenblatt is the founder and manager of Gotham Asset Management. He started Gotham Capital in 1985 and generated a 50 percent annual return from 1985 to 1994. He is also an advocate of value investing strategy. His Gotham Asset Management currently manages assets worth $5.6 billion.

Here are some of the investing wisdom (quotes) from Joel Greenblatt which can be very useful for the average investor.

Investing Wisdom (Quotes) From Joel Greenblatt

The secret to investing is to figure out the value of something – and then pay a lot less.

If you just stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield), you can end up systematically buying many of the good companies that crazy Mr. Market has decided to literally give away.

The more confidence I have in each one of my stock picks, the fewer companies I need to own in my portfolio to feel comfortable.

Businesses that earn a high return on capital are better than the businesses that earn a low return on capital.

Value investing doesn’t always work. The market doesn’t always agree with you. Over time, value is roughly the way the market prices stocks, but over the short term, which sometimes can be as long as two or three years, there are periods when it doesn’t work. And that is a very good thing. The fact that our value approach doesn’t work over periods of time is precisely the reason why it continues to work over the long term.

One way to create an attractive risk-reward situation is to limit downside risk severely by investing in situations that have a large margin of safety. Look down, not up, when making your initial investment decision. If you don’t lose money, most of the remaining alternatives are good ones.

There’s a clarity that comes with great ideas: You can easily and simply explain why something’s a great business, how and why it’s cheap, why it’s cheap for temporary reasons and how, on a normal basis, it should be trading at a much higher level. You’re never sitting there on the 40th page of your spreadsheet, as Buffett would say, agonizing over whether you should buy or not.

The strategy of putting all your eggs in one basket and watching that basket is less risky than you might think.

Remember, it’s the quality of your ideas not the quantity that will result in the big money.

To be a successful investor over the long-term, you must also pretty much enjoy the journey.

Stocks are not pieces of paper that bounce around, they are businesses that you value and try to buy at a discount. If you are going to buy individual stocks, you need to know how to value companies yourself.

It just seems logical that sticking to investing in only a small number of companies that you understand well, rather than moving down the list to your thirtieth or fiftieth favorite pick, would create a much greater potential to earn above-average investment returns.

If you are going to be a very concentrated investor, you should not use leverage. You can’t leverage because you need to live through the downturns and that is incredibly important.

Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.

Usually what happens is, the stock price is like a rubber band. It stretches away from value. If we’re good at valuing businesses, the rubber band will snap back.

You must be diversified enough to survive bad times or bad luck so that skill and the good process can have the chance to pay off over the long term.

The most successful horseplayers (I guess they lose the least) are the ones who don’t bet on every race but wager on only those occasions when they have a clear conviction.



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