How to Invest Like Joel Greenblatt: Learn from the Best with New Gen
Joel Greenblatt is an investor and hedge fund manager, born December 13, 1957 in Great Neck, New York, and a 1980 graduate of the Wharton School of the University of Pennsylvania. In 1985 he started his own hedge fund called Gotham Capital, with an initial capital of $7 million, mostly injected by the “junk bond king” Michael Milken. In 1989 Robert Goldstein, a new partner, joined Gotham Capital to run the firm jointly.
Greenblatt was noted for his skill and vision in the world of finance. Between 1988 and 1994, he delivered annual after-tax returns of up to 30% to his investors. In 2000, his firm helped Michael Burry create the Scion Capital fund by buying 25% of its capital for a sum of one million dollars.
In 2008 Greenblatt created Gotham Asset Management LLC, whose firm, two years later had four funds structured that raised in excess of $360 million, and by the end of 2019 reached $5.6 billion.
The magic began on December 13, 1957, when Joel Greenblatt, who would later discover the "magic formula" to beat the market, was born into a Jewish family in Great Neck, New York.
Joel Greenblatt has served as a professor at Columbia University’s Graduate School of Business since 1996 and has written four books on the importance of financial education, including “The Little book that beats Market”, in which he details his investment style and his formula for beating the market.
The investor has openly declared himself a participant in value investing, which he also calls the “magic formula” and whose methodology determines which stocks to buy. This investment strategy is based on ranking companies on the basis of two main criteria: return on capital and price over earnings. Its purpose is to demonstrate that it is possible to invest in quality stocks on the basis of only two indicators.
Return on earnings: The objective of this indicator is to determine whether the company is profitable, i.e. whether it is making a profit.
Return on capital: The objective of this rule is to distinguish companies that make good use of their assets from those that do not.
The logic is that the better investment is the one that generates a better return for the same amount of investment.
It should be noted that not all companies can be analyzed based on the aforementioned criteria. The requirements that must be met to be included in the Greenblatt analysis are as follows:
- Not to be financial companies. Since their balance sheets are not comparable with the rest of the companies.
- They must not be utilities companies (raw materials). Since they tend to operate in excessively regulated markets.
- S. companies. This type of investment only applies to U.S. stocks.
- Companies with a market capitalization of more than 100 million dollars. To avoid liquidity problems.
Investing using this methodology is excellent because it allows you to buy good businesses that will most likely continue to be profitable businesses.
If you wish to learn more about this investment model, please contact your financial advisor.
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