Portfolio manager, Private Capital Management (CEO & CIO).
Until recently, a little known money manager. Now known for staking big money on newspaper stocks and causing a stir at Knight Ridder.
Learn more at Bruce Sherman’s GuruFocus page.
You can also read this interview with Mr. Sherman.
Author of “Common Stocks and Uncommon Profits” and “Conservative Investors Sleep Well” (among other books). Best known for his fifteen points and his influence on Warren Buffett’s investment philosophy. Read Phil Fisher’s obituary written by his son Kenneth Fisher. You can also read the Motley Fool’s “Thanks, Philip Fisher”.
Born: 1957 in Great Neck, NY
Education: B.S., Wharton School, University of Pennsylvania, 1979; M.B.A., 1980.
Author of “The Little Book That Beats the Market” and “You Can Be a Stock Market Genius” (good books; hokey titles).
In 1985, Joel Greenblatt founded Gotham Capital, a private investment partnership, with $7 million, much of which was provided by Michael Milken. From 1985 to 1995, Gotham Capital achieved an annualized return of 50% before the general partners’ incentive allocation (i.e., after expenses but before fees). In concrete terms, a $1,000 investment in 1985 would have grown to roughly $52,000 in 1995 – if it weren’t for the general partners’ take.
The time period chosen is not arbitrary. In early 1985, Gotham Capital was opened to outside limited partners. In January of 1995, all capital was returned to the outside limited partners. In other words, during the time Gotham Capital was open to outside investors, it achieved an annualized return of 50%.
There isn’t exactly a plethora of public information on Mr. Greenblatt and his investment philosophy. Therefore, much of what follows is mere conjecture.
Joel Greenblatt began his career as a value investor in the Graham and Dodd vein. He tended to look for companies that were conspicuously cheap on quantitative grounds. Such an approach often leads to “cigar butts”, sub – par businesses selling at rock bottom prices. For instance, while at Wharton, Mr. Greenblatt and his friend Richard Pzena tested Benjamin Graham’s Net Current Asset Value (NCAV) strategy.
Over the years, Joel Greenblatt’s approach to investing came to more closely resemble that of Warren Buffett. In the 1990s, Mr. Greenblatt began looking specifically for companies that were both cheap and good. In other words, Joel looked for companies that had both a high earnings yield and a high return on capital. These are the two components of the Magic Formula.
In truth, Joel did not consider these metrics alone. The Magic Formula is intended for those individuals who lack either the ability or the inclination to evaluate businesses. Clearly, Mr. Greenblatt lacks neither. Therefore, it is likely his own mental model of a business is a bit more complex than the Magic Formula.
For instance, Joel probably calculates the earnings yield for a stock based on his estimate of normalized earnings rather than simply using the stock’s most recently reported earnings. Mr. Greenblatt also considers future growth prospects. He, like Buffett, has said growth is a part of the value equation. Joel probably agrees with what Warren Buffett wrote about the subject in his 1992 letter to shareholders:
“But how, you will ask, does one decide what's "attractive"? In answering this question, most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross- dressing.”
“We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.”
“In addition, we think the very term "value investing" is redundant. What is "investing" if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labeled speculation (which is neither illegal, immoral nor - in our view - financially fattening).”
Joel Greenblatt is the author of “You Can Be a Stock Market Genius” (1997) and “The Little Book That Beats the Market” (2005). Mr. Greenblatt founded Gotham Capital (a hedge fund), the New York Securities Auction Corporation (a bond trading firm), and the Value Investors Club (an online investing community).
Joel Greenblatt formerly served as Chairman of Alliant Techsystems (ATK), one of the largest suppliers of ammunition to the U.S. government. He is currently an adjunct professor at Columbia University’s Graduate School of Business.
Joel Greenblatt's younger sister, Linda Greenblatt, is also a hedge fund manager. Ms. Greenblatt is the managing partner at Saddle Rock Partners, a New York hedge fund. She specializes in retail investing. Ms. Greenblatt is sometimes referred to as Linda Greenblatt Gordon (In 2004, she married Mr. Michael Gordon). Linda Greenblatt, like her brother Joel, is a graduate of the University of Pennsylvannia.
Joel Greenblatt is an extraordinary investor and a brilliant writer on investing; only a handful among the living can justly claim to be both. His two books are among the best works on investing written in the past half century.
Related Reading
The Little Book That Beats the Market
You Can Be a Stock Market Genius
Guru Focus
Insights from a Meeting with Mr. Greenblatt
Joel Greenblatt Speaking at NYSSA
How Joel Greenblatt Uncovers the Secret Hiding Places of Stock Market Profits
New York
How is a Hedge Fund Like a School?
If you have any information about the subject of this encyclopedia entry, please email me. I am always looking to improve the accuracy of these entries. Both corrections and new information are welcome.