“For unto whomsoever much is given, of him shall much be required.” – Luke 12:48
I don’t know what age guru Joel Greenblatt (Trades, Portfolio) was when he first became aware of that biblical passage. For that matter, I don’t know if he ever read or heard it, but if he did not, he took its message to heart, anyway.
In addition to being a successful value investor and hedge fund manager, the Long Island, N.Y., native has been “giving back,” as the saying goes, as an adjunct professor in Columbia University’s Graduate School of Business, sharing the knowledge he has acquired with graduate students, and as a contributor to education in New York City.
Greenblatt also founded New York Securities Auction Corporation (NYSAC), and he has been the chairman and principal executive officer at St. Lawrence Seaway Corp. since 1993.
He gave $2.5 million to an elementary school in Queens, N.Y., in 2002; he helped start the Success Academy Charter Schools in 2006; he serves on the board of the Institute for Student Achievement, and he played a key role (with gurus David Einhorn, Dan Loeb and Leon Cooperman) in the creation and implementation of the Portfolios with Purpose virtual stock trading contest in which participants choose a five-stock, long-term portfolio. (After 12 months, those with the top-performing portfolios get to designate the contestants’ entry fees to the charities of their choice.)
After receiving his BS and MBA from the business school of the University of Pennsylvania, Greenblatt embarked on his financial career. He founded Gotham Capital hedge fund in 1985, and he co-founded the Value Investors Club website in which members submit investment ideas; twice a month, the member whose idea is judged the best receives a $5,000 prize.
“Value investing means you figure out what something’s worth, and you pay a lot less for it,” Greenblatt has said.
“Value investing doesn’t always work,” he observed. “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.”
Greenblatt’s observations on investing are logical and persuasive:
- “A higher earnings yield is better than a lower one.”
- “Buying a share of a good business is better than buying a share of a bad business.”
- “Businesses that earn a high return on capital are better than businesses that earn a low return on capital.”
- “Buying good businesses at bargain prices is the secret to making lots of money.”
- “If your goal is to beat the market, an MBA or a Ph.D. from a top business school will be of virtually no help.”
For many, Greenblatt may be best known for his strategy of "magic formula investing” – which helps him identify "cheap and good companies" with a high earnings yield and a high return on invested capital. He discussed the strategy in detail in his 2006 book, “The Little Book That Beats the Market,” which became a New York Times bestseller.
Between 1985 and 2005, Greenblatt compiled one of the most impressive records of any fund manager on record, returning 40% annualized returns. These results were achieved using methods described in his 1999 book “You Can Be a Stock Market Genius.”
Greenblatt devoted a lot of that book to spinoffs and asserted that it was crucial to evaluate the interests and actions of the company’s management and whether the insiders were interested in investing in company stock.
Greenblatt’s largest single holding is 8,040,214 shares in Connecticut-based Frontier Communications Corp (FTR, Financial). His second-largest holding is in California-based computer hardware company Brocade Communications Systems Inc (BRCD, Financial); he owns 6,264,714 shares in Brocade.
Greenblatt’s other major holdings include 5,938,291 shares in Minnesota-based retailer SUPERVALU Inc (SVU, Financial), 3,163,882 shares in Pennsylvania-based retailer Rite Aid (RAD, Financial) and 3,070,692 shares in Xerox Corporation (XRX, Financial).
He owns nearly 2 million shares in Delaware-based NeuStar Inc. (NSR, Financial), one of his undervalued stocks. NeuStar is an information and analytics company that focuses on Internet, telecommunications, entertainment and marketing.
