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. A holding period of more than one year also works quite well as the factors are persistent in years 2 and 3.
Joel GreenblattSo one way to create an attractive risk/reward situation is to limit downside risk severely by investing in situations that have a large margin of safety. The upside, while still difficult to quantify, will usually take care of itself. In other words, look down, not up, when making your initial investment decision. If you donโt lose money, most of the remaining alternatives are good ones.
Joel GreenblattI still believe that for good business analysts a concentrated portfolio is a good strategy combined with a long term horizon. Once again, the secret to success in following the formula strategy is patience, a quality in short supply for both professionals and individual investors alike. I think investors should have a large portion of their assets in equities over time.
Joel GreenblattI think the exercise of trying to figure out how to simplify concepts has been incredibly helpful to me over the last 13 years of teaching and I hope my students have benefited from it.
Joel GreenblattValue investing strategies have worked for years and everyone's known about them. They continue to work because it's hard for people to do, for two main reasons. First, the companies that show up on the screens can be scary and not doing so well, so people find them difficult to buy. Second, there can be one-, two- or three-year periods when a strategy like this doesn't work. Most people aren't capable of sticking it out through that.
Joel GreenblattThereโs a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You canโt be a good value investor without being an independent thinker โ youโre seeing valuations that the market is not appreciating. But itโs critical that you understand why the market isnโt seeing the value you do. The back and forth that goes on in the investment process helps you get at that.
Joel Greenblatt