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Joel Greenblatt Appears on Bloomberg

January 03, 2006

Joel Greenblatt: "WE TRY TO MAKE IT (the magic formula) AS SIMPLE AS POSSIBLE. REALLY JUST INVOLVES BUYING GOOD COMPANIES, AT BARGAIN PRICES. THAT SOUNDS REALLY SIMPLE, BUT IT REALLY BOILS DOWN TO WE TESTED TWO THINGS OVER 17 YEARS, WHICH WAS WHAT HAPPENS IF YOU ONLY BOUGHT GOOD COMPANY, THAT MEANS COMPANIES THAT ARE A HIGH RETURN ON CAPITAL. THAT'S IF YOU HAVE A STORE THAT EARNS $200,000 A YEAR AND COST $400,000 TO BUILD, THAT'S A 50% RETURN ON CAPITAL. IF YOU HAVE A STORE THAT COSTS $400 TO BUILD AND ONLY EARNS $$10,000. THAT'S 2.5% RETURN ON CAPITAL. WE RANKED ALL COMPANIES AND ON CHEAPNESS, HOW MUCH THEY EARN RELATIVE TO THE PRICE THAT YOU PAY. WE COMBINED THE RANKINGS. IN THE LAST 17 YEAR, IF YOU ACTUALLY JUST DID THAT, YOU WOULD EARN OVER 30% A YEAR. "

http://nyvidsrch.bloomberg.com/vss-bin/vss_WindowsMedia.pl/smedia_v2/search?proxy_url=mms%

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