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An Interesting Interview with Joel Greenblatt
By JLP | July 1, 2009
GuruFocus posted an interesting interview with Joel Greenblatt, author of The Little Book That Beats the Market
You may or may not remember that I followed Greenblatt’s Magic Formula for awhile here on AFM. I gave it up—not because I think the strategy is bad but because I didn’t have the time to update the numbers.
My concern with any “formula” is that as soon as it gets popular, it no longer works. So, the last question and answer bugs me:
Question 27. Is your involvement in Formula Trading an attempt to bring your Magic Formula Investing methodology to the mass? (guruek)
JG: Over the past 4 years, I have been approached many times by people asking me for a simple and cheap way to implement the Magic Formula strategy. So after I met Blake Darcy, the founder of DLJdirect, I thought we had a chance to create such a way. The result was FormulaInvesting.com and I do hope it helps individual investors pursue the Magic Formula strategy. The firm allows investors to choose from a list of Magic Formula stocks and to buy them all at once with one click or to have the firm just do the whole process for them.
When it comes to value investing…if everybody’s doing it, what’s the point?
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Topics: Miscellaneous | 3 Comments »
July 2nd, 2009 at 8:50 pm
Problem is not everyone is doing value investing. We have lost touch with what true value is in the stock and real estate markets.
There are so many players in the market that the system may or may not work. It is true that if everyone does it then it loses some of its value. This happened with the Dogs of the Dow as well. But, once it fell out of favor, it did better. So if you find a system that is producing great returns then wait for everyone to follow it. Then when it stops working, start using it.
July 4th, 2009 at 6:15 am
If a formula could truly always beat the market, then everyone would use it and it would ~become~ the market.
July 6th, 2009 at 9:30 pm
Trent, exactly right! People didn’t know how to price options, until the Black-Scholes model came out and won the Nobel prize, then every damn trader’s calculator has it built into it. If there’s any formula that can work you to a non-zero advantage, you can be sure those thousands of big financial institutions around the world (pension funds, insurance, banks etc) will have their teams of PhD’s and Nobel prize winners exploit it to the point there’s no advantage left for peanut counters like you and me. So don’t lose any more money on those stupid books.