Guru Joel Greenblatt (Trades, Portfolio) is a value investor and author of “You Can Be A Stock Market Genius Even If You’re Not Too Smart,” a book I read recently and felt a few of the quotes in it were worth sharing.
There are many great quotes in the book, but one quote that really hit home for me was “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.”
He then went on to say, “Professors spend a lot of time teaching things like quadratic parametric programming – which loosely translates to how to pick diversified stock portfolios in three-dimensional space. In other words, if you muddle through complex mathematical formulas and throw in a little calculus and statistical theory along the way, you stand a pretty good chance of matching the performance of the popular market averages. Wow! While there are plenty of other bells and whistles, the message is clear: You can't beat the market so don't even try. Thousands of MBAs and Ph.D.s have paid good money for this lousy advice.”
Greenblatt is completely honest with his opinions when he compares investing in the stock market to the fundamentally flawed mental models that some professors were teaching in colleges at the time Greenblatt wrote this book.
Greenblatt also describes the importance of doing your own homework when it comes to investing.
He writes, “You want to be well paid because you did your homework. If you are one of the few people to analyze a particular investment opportunity, it follows that you are in the best position to assess the appropriate payoff for the risk taken.
He then went on to say, “The payoff to all your legwork and analysis is the opportunity to invest in situations that offer unfair economic returns. Your extraordinary profits will not be a result of taking on big risks; they will be the justly deserved pay for doing your homework.”
Greenblatt's statement ties in with the philosophy of great investor Charlie Munger (Trades, Portfolio). Both gurus like to take their time doing their homework before they invest their hard-earned capital in securities.
Greenblatt provides many more pieces of wisdom in his book, including discussions of spinoffs, risk arbitrage, recapitalizations, prime sources of investment information and stub stocks. The book is worth reading as Greenblatt shares his knowledge and wisdom.
Cheers to your investment success.
