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Joel Greenblatt Talks About His Favorite Stocks

October 01, 2011 | About:
Details behind the "magic formula," and whether buying stocks that look the cheapest based on yield can continue this momentum, with Joel Greenblatt, Gotham Capital founder.



the hedge fund manager behind the magic formula investing strategy has delivered impressive returns. his firm Gotham capital delivered -- late last year he launched a family of four mutual funds called formula investing. The key here is value waited investing, buys stocks, and return on capital.

What about the global economic weakness and European debt crisis woes? did that outperform that situation? let's ask joel greenblatt.

it's great to see you. thank you. talk about the formula. is it yield over some sort of return? what's magic about it? well, unfortunately it's not really magic, but it does work well over the long term. we're trying to do two things. one buy something cheap. ben graham said figure out what it's worst and pay a lot less. what we look at is free cash flow to the price we're paying. warren buffett added a twist to that. he said cheap is nice, but if i can buy a good company cheap, that's even better.

we try to get the best combination of cheap and good.what do you think about this market right here? i would think for a value investor, there appears to be a lot of value, or is there a value trap? well, we have looked at trailing free cash flow yields over the last 20 years. right now stocks are priced somewhere around the 95 percentile toward cheap. both for the 345rk9 and for the value portfolios that we can put together. if you really look at that, what that said a a year ahead, market could be up 15% or 20%. at least that's what's happened in the past. the value portfolios could be up in the mid 30s, so, you know, it's a very scary time to invest. that's when you get your best bargains.stocks are reflecting a lot of skepticism right now, and usually it doesn't look this good unless things look terrible.

some of your top holdings, game stop, america eagle, best buy, microsoft, wells fargo, is there. is there a narrative that runs through them other than the formula itself?

the narrative is each one of those companies is hated brutally by most people. Hewlett-Packard (HPQ), i think we know the story. we sort of know the story, but the prices are cheap. because of metrics we used, we actually excluded financials. there was no projection just that one of the metrics we were using was earnings before interests and tax.so we now new include banks in our widely diversified portfolios. what do you say to those who say historical patterns are meaningless. where we're being to go through a looking glass if you assess the situation in Europe. every time we've had evaluations this low, the macro environment has looked terrible. so at a minimum, you would say that prices reflect that people are skeptical. prices reflect that things might not be so great next year.

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

Visit Jacob Wolinsky's Website


Rating: 3.8/5 (17 votes)

Comments

ramands123
Ramands123 - 2 years ago
Jacob Wolinsky - You are doing us an incredible favour buy getting us all this incredible information , vedio's and articals.. Please keep up the good work. We really apperciate it

claphands22
Claphands22 - 2 years ago
I wonder how they now do the magic formula for financials. Thanks for the post!
yswolinsky
Yswolinsky - 2 years ago
Thanks for the compliments guys!
ken_hoang
Ken_hoang - 2 years ago
Thanks for the video man. It's great. Keep it up!
Adib Motiwala
Adib Motiwala - 2 years ago
Jacob,

One of the best at GuruFocus. Cheers mate!

Adib

Please leave your comment:


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