Monday, March 7, 2011

Lessons from the Legends: Joel Greenblatt

Joel Greenblatt is an esteemed professor at Columbia University (the only place I would consider doing a masters in anything finance related). He also is a very successful portfolio manager (the very rare breed of professors -- those with practical experience who care more about the real world than the theoretical).

For a top professor, you might expect he uses very complicated models or high level mathematics... well he doesn't:

"I look for obvious things when looking for bargains, not something terribly obscure ... wouldn’t involve higher mathematics or special sleuthing talents."

"When doing in depth analysis of companies, I care very much about long term earnings power, not necessarily so much about the volatility of that earnings power but about my certainty of “normal” earnings power over time. My goal is to buy a company at a low multiple to normal earnings power several years out and that the company earns good returns on capital at that level of normal earnings ... I usually just look at a simple multiple to normalized earnings. If I can buy something at a very low multiple and I have confidence in the earnings stream, I don’t have to calculate a DCF to know whether I want to buy it."

As you may have noticed in the video I posted on him in an earlier post, he uses a simple approach that works.

19 comments:

  1. Seems to be a genius - and a nice guy
    Baxxmans

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  2. As a finance guy, this is useful information

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  3. Sounds like this guy knows what he's talking about. A bit weird that he doesn't concern himself with volatility of corporate earning power though.

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  4. I really like his down to earth style

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  5. That's an interesting way of approaching investing.

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  6. it makes it sound even easy!!

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  7. Great write up, a very interesting read.

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  8. That is useful information, im liking the blog and following close!

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  9. Thanks for the informational post.

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  10. Useful information, will look into this some more, thanks dude

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  11. an understandable and practical approach to doing business. nice. :)

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  12. Interesting info on investing! I would like to see more posts about investing! Followed!

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  13. This is actually very good info. Came back a second time to re-read it!

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  14. Yeah it does seem like he knows what he is talking about. nice post!

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