Joel Greenblatt's new book anticipation thread

[jb85]

I would agree, expecting 30% returns is not realistic, but i'm attacking the idea that you can't make money by following a formulaic approach.  Heck, even Buffett did this with S. Korean stocks.  He basically looked for low P/E stocks, increasing earnings, and maybe low book value and bought a basket of the stocks.  A lot of the companies didn't have annual reports in english, so he didn't do a ton of research.

 

Its just funny how some people on here go from the valid idea that formulaic approaches probably won't make as much money as the best bottom up managers, to the completely invalid idea that somehow anyone who follows a formulaic approach is "gullible" or "lazy" or will lose a bunch of money

[given2invest]

The problem I have with the magic formula is it's all backwords looking and doesn't take into account:

 

1)  businesses that are going away and thus their historical returns are irrelevant (USMO for example, pre stupid acquisition)

2)  businesses that have had huge writedowns and thus their ROA isn't what it appears

 

So what? The whole point is that you're buying a basket of stocks. It doesn't matter what any individual stock does; it's only important how the basket performs. That's pretty much the whole point of investing in baskets/indexes/etc.

 

Could there be a very simple shorthand for "beating" the market?  I guess.  But it seems like by definition, once it's discovered, it ceases to exist.  I don't believe in efficient markets but I do believe that if there is a simple stat program that could vastly outperform the market - the computers will "efficient the shit out of it". 

 

What if beating the market over the long-term required you to underperform for periods up to 3 yrs in length? Do you still think the computers would "efficient the shit out of it?" Remember what happened to LTCM? Markets can remain irrational longer than you can remain solvent.

 

I bought Joel's new book and look forward to reading it.  I actually respect what he's trying to do.  We all get asked all the time how someone should invest and it's am impossible question to answer.   The default is usually index funds and set it and forget it and don't expect to get rich off of it.   Maybe there is something better...but I doubt it.

 

Ever heard of Dimensional Fund Advisors. They took Fama and French's research and built a massive business around it.

http://www.dfaus.com/

 

 

 

And I'm saying a basket of magic formula stocks will not outperform the correct benchmark going forward.  Back testing is irrelevant to me.  I have no problem with baskets, hell I just put on a large cap value basket. 

 

Regarding this:

 

"What if beating the market over the long-term required you to underperform for periods up to 3 yrs in length? Do you still think the computers would "efficient the shit out of it?" Remember what happened to LTCM? Markets can remain irrational longer than you can remain solvent."

 

I said markets aren't efficient.  Your hypothetical example is kind of silly to me.  Also, I have no idea what your point is with LTCM.  That computers can get it wrong?  Of course.  Where did I say they couldn't?  Where did I advocate computer based investing? 

[DukeCrow]

Regarding this:

 

"What if beating the market over the long-term required you to underperform for periods up to 3 yrs in length? Do you still think the computers would "efficient the shit out of it?" Remember what happened to LTCM? Markets can remain irrational longer than you can remain solvent."

 

I said markets aren't efficient.  Your hypothetical example is kind of silly to me.  Also, I have no idea what your point is with LTCM.  That computers can get it wrong?  Of course.  Where did I say they couldn't?   Where did I advocate computer based investing? 

 

Not a hypothetical example. MFI did underperform for periods up to 3 yrs and that was a key point Prof. Greenblatt made at the time the original book came out. He suggested that the reason that his "magic formula" would continue to outperform over the long-term was precisely because most investors wouldn't be able to deal with underperforming for periods up to 3 yrs.

[Liberty]

Gannon posted a review of it:

 

http://www.gurufocus.com/news/128995/book-review-the-big-secret-for-the-small-investor