“Although in the short-term Mr. market bases its prices on emotions, in the long-term Mr. market prices according to value.”

Joel Greenblatt

The magic begins

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.

Trajectory

After an uncomplicated childhood, Greenblatt entered and graduated from the Wharton School of the University of Pennsylvania with an MBA in 1985. That same year, thanks to the support of Michael Milken, he started his own investment fund, Gotham Capital, with $7,000,000 in start-up capital.

Greenblatt’s success and skill were such that, between 1988 and 1994, he delivered annual returns of up to 50% before taxes, or in other words, 30% after taxes and fees, for his investors.

In 2000, Greenblatt’s fund helped Michael Burry build the Scion fund by providing him with $1 million. Over the years, Gotham Capital would entrust Burry with about $100 million.

Although productive, the relationship hit a rough patch in 2006, when differences over Burry’s bet against the mortgage market led Greenblatt, like other investors, to try to withdraw his capital and Burry prevented him from withdrawing it until after a year.

In the end, Burry was right and Greenblatt enjoyed those benefits as soon as the 2008 mortgage financial crisis broke out, however, Greenblatt decided to withdraw his capital from Scion.

In 2008 Greenblatt created a new firm, Gotham Asset Management LLC. With this new firm, by 2010 he had four funds structured that raised more than $360 million dollars, and due to Greenblatt’s fame and prestige, by the end of 2019 he was managing more than $5 billion dollars.

In addition to running his investment firm, Greenblatt has been a professor at Columbia University’s Graduate School of Business since 1996. He has also founded an exclusive club, “The value investors club” where only 250 value investors are accepted to provide each other with useful advice and exchange their market views.

Thanks to these activities, he has realized the importance of financial education and, in this regard, he has written four books, among them “The Little book that beats Market”, in which he explains his magic formula to beat the market.

What is his investment style?

Joel Greenblatt has not only openly expressed but has also published books about his methodology to obtain great returns. He defines himself as a believer in value investing.

The magic formula for outperforming the market is based on long-term confidence in finding companies with low share prices but high returns on earnings and invested capital.

The other key part, which is where the hard part of the work is focused, comes from the fact that, as he puts it, the vast majority of managers’ opinions and views are expressed around 40% of the companies listed on the market. In contrast, Greenblatt looks for value in 60% of the stock market universe, which is practically abandoned by the major managers.

Joel Greenblatt today

Joel Greenblatt is still active on Wall Street, and teaching at Columbia, in addition to continuing to manage his exclusive club. Like other major investors, he also devotes time and money to philanthropy, mainly to improve the education of marginalized sectors, such as African Americans and Latinos, in New York. Undoubtedly, it is not only necessary to be aware of his opinions on the market, but also to consider his advice, through his many books.