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After Selling Ambassadors Group Inc., Joel Greenblatt Keeps only two stocks: Telemig Celular Participaes S.A. and Ark Restaurants Corp.

June 02, 2009 | About:
Joel Greenblatt must be distracted by something else or on his way out of the picture of investment management. His portfolio that we track has dwindled to just two stocks and $1.2 million or reported assets. But that is two mighty stocks, for since the quarter end of 1Q09, his two-stock portfolio is on fire, shooting up 54% in about two months.

The Man Behind the Magic Formula

In 1985, Joel Greenblatt founded Gotham Capital, a private investment partnership, with $7 million, mostly provided by Michael Milken . From 1985 to 1995, Gotham Capital achieved an annualized return of 50% after expenses but before fees. In concrete terms, a $1,000 investment in 1985 would have grown to roughly $52,000 in 1995 – before the general partner took his share that is.

By 1995, Joel Greenblatt returned all the money back to the outside limited partners.

In 2005, Joel Greenblatt published his book The little Book that Beats the Market . In the book he detailed a stock selection process based on the highest combination of return on capital and earning yield, or in plain English, “good and cheap” principle, or otherwise known as “Magic Formula”.

The Two-Stock Portfolio

As of March 31, 2009, Greenblatt’s portfolio that is trackable by GuruFocus has two names left: Telemig Celular Participaes S.A. (TMB) and Ark Restaurants Corp. (ARKR). There were a third stock in the portfolio, Ambassadors Group Inc. (EPAX), but he sold out in the quarter.

Since the end of 1Q09, the two-stock had a spectacular run, gaining nearly 54%:



No. 1: Telemig Celular Participaes S.A. (TMB), Weightings: 63.76% - 21,734 Shares

Telemig Celular Participaes S.A. provides cellular mobile services and complementary activities required to perform such services in the State of Minas Gerais in Brazil. The company has a market cap of 1.05 billion and is trading at $56.16 per share.

Joel Greenblatt had 162,234 shares as of December 31, 2008 but sold most of them during 1Q09. As of March 31, 2009, he had 21,734 shares. I will not be surprised if he reported that he has sold all the shares by the next time he reports. TMB shares is one of the minority stock who has seen that stock price going up steadily in the past 6 months.

Some formula that is magic working here?

No. 2: Ark Restaurants Corp. (ARKR), Weightings: 36.24% - 47,336 Shares

Ark Restaurants Corp. operates 29 restaurants, two bakeries, and a cafeteria. Of those facilities 23 restaurants and two bakeries are owned by the Company and six restaurants and the cafeteria are owned by others and managed by the Company. Ark Restaurants Corp. has a market cap of $47.1 million; its shares were traded at around $13.49 with a P/E ratio of 9 and P/S ratio of 0.4. Ark Restaurants Corp. had an annual average earning growth of 4.9% over the past 5 years.

Joel Greenblatt acquired the 47,336 shares during 4Q08 and held through 1Q09.

Sold Ambassadors Group Inc. (EPAX), Total: 550,263 Shares

AMBASSADORS GRP is a spun-off corporation. It is a company coordinating and marketing international educational travel programs for students, athletes, and professionals. Ambassadors Group Inc. has a market cap of $244.5 million; its shares were traded at around $12.99 with a P/E ratio of 13.5 and P/S ratio of 2.5. The dividend yield of Ambassadors Group Inc. stocks is 1.9%. Ambassadors Group Inc. had an annual average earning growth of 28.8% over the past 5 years.

Joel Greenblatt bought 550,000 shares in 4Q04 and sold them all in 1Q09.

Conclusion

Joel Greenblatt is liquidating his positions. It will be a loss to the value investing community if he ceases practicing his simple, beautiful and effective investing style all together.

About the author:

guruek
Ravi Nagarajan is a private investor and Editor of The Rational Walk website. Ravi focuses on applying value investing techniques to find securities trading well below intrinsic business value. Ravi has over 15 years of experience in the financial markets and started investing on a full time basis in 2009. From 1996 to 2009, Ravi held a number of technical and executive level positions in the commercial software industry. Ravi graduated Summa Cum Laude from Santa Clara University with a degree in finance. Visit his website The Rational Walk

Visit guruek's Website


Rating: 3.6/5 (12 votes)

Comments

Max7777
Max7777 premium member - 5 years ago
I seem top recall he only had one or two stocks in the portfolio about 2 years ago.. was it WMT and AXP
fk
Fk - 5 years ago
I don't remember if it was WMT and AXP, but I also remember for a while he only had a few stocks. In between then and now, his portfolio was suddenly populated with 20-40 magic formula picks. By his actions, I can only guess he thinks the market has not bottomed yet and doesn't want to have equity exposure until it looks like the worst is over.

It would be really cool if gurufocus kept a database of all the gurus moves (rather than cleaning off the slate when they closed positions) and we could enter any year and quarter to see what that guru's portfolio consisted of.
therye
Therye - 5 years ago
Greenblat may have sold, but Punch Card Capital has not (credited in "little book that beats the market" PCC still owns large amounts of TMB and EPAX!!! I agree though I do not believe this "bull market" one bit. We will test 7000 again... at least. TMB was also recently written up on VIC. I was looking at that stock in the 20's and didn't pull the trigger because of the complexity of the capital structure and the difficulty of doing research on the firm.

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