Greenblatt on Markets, Magic Formula & More

In a wide-ranging interview, author and hedge fund guru Joel Greenblatt has responded to a myriad of reader questions on GuruFocus.com, offering his thoughts on portfolio strategy, macroeconomic analysis, and whether the potential popularity of his new website, FormulaTrading.com, will impact the success of his “Magic Formula”. Greenblatt’s formula, detailed in his Little Book that Beats the Market, includes only two variables: return on capital and earnings yield. Despite its simplicity, it has a lengthy track record of beating the market by a wide margin, and our Validea.com Greenblatt-inspired portfolio is doing particularly well in 2009 (see below for its […]

Portfolio Size: How Big Is Big Enough?

How many stocks should you own? Rob Wherry of SmartMoney.com takes an interesting look at that question today on The Wall Street Journal’s web site. Wherry examines “focused funds” (those that own fewer than 50 stocks), narrowing the list down to 18 that meet performance, fee, sales load, and manager experience requirements. Among the funds with the best five-year track records: CGM Focus (3.9% average annual return) and Forester Value (3.5% annual return), run by two gurus we’ve looked at here before, Ken Heebner and Tom Forester. Perhaps more interesting than the fund screen is some data Wherry provides on […]

There’s Magic in Greenblatt’s “Magic Formula”

I’ve added a new investment model to my arsenal. It’s based on the “Magic Formula” strategy that Joel Greenblatt outlined in The Little Book that Beats The Market. Some of what you’ll find below is a recap of a post I did last week, but in this post I’ve also included the ten stocks that are currently in my Greenblatt-based portfolio. The beauty, and attractiveness, of Greenblatt’s “Magic Formula” lays in its perceived simplicity. The purely quantitative approach has just two variables: return on capital and earnings yield. Greenblatt’s back-testing found that focusing on stocks that rated highly in those […]

What Does It Mean to be a Value Investor?

In a piece written for Forbes.com’s “Gurus’ Guide to 2009“, John Heins and Whitney Tilson do a great job in examining just what makes an investor a value investor. While value investors come in all shapes and sizes — large-cap, small-cap, activist, non-activist, U.S.-focused, foreign-focused — Heins and Tilson list 12 similarities they share. A sampling: They focus on intrinsic company value and buy only when there is a substantial margin of safety, rather than trying to guess where the herd will go next. They understand and profit from reversion to the mean rather than projecting the recent past indefinitely […]