Joel Greenblatt diversifies

Joel Greenblatt made investors fortunes at his hedge fund 30 years ago by holding a highly concentrated basket - six to eight names - of deep-value stocks, but his approach today is somewhat different: Buy more than 300 high-quality stocks trading at cheap prices and short more than 300 expensive, lower-quality names. Stocks are weighted in the portfolio depending on where they rank along that spectrum.

Greenblatt: "[My partner] and I would wake up some days and lose 15% or 20% of our net worth ... now it's more like 15 or 20 basis points."

The strategy is also available in a trio of mutual funds Greenblatt's Gotham Asset Management offers, and they now account for more than half of Gotham's $7B in AUM.

A top position last year remaining a large holding after a big run higher is Apple, thanks to "huge returns on capital" and 11% earnings yield. As for Apple's future, Greenblatt will leave that for others to debate: "I don't own just Apple. I own a bucket of companies like Apple, and over time, I know my bucket is going to work."

Top 5 long holdings now: ENR, SAFM, BG, AXE, CAT.

Top 5 short holdings now: SUSS, THC, BOBE, KMT, TMO.

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Comments (11)
  • TheeSeer
    , contributor
    Comments (387) | Send Message
    Joel added 700,000 shares of CBI (Chicago Bridge and Iron) as did Buffett. I'm long and see a move to the 70's which is Warren Buffett's average price entry last month. He owns close to 9%.
    23 Aug 2014, 11:05 AM Reply Like
  • jumpnjoey77
    , contributor
    Comments (1195) | Send Message
    Front running the highway bill?
    23 Aug 2014, 01:32 PM Reply Like
  • moatfrog
    , contributor
    Comments (1123) | Send Message
    This is merely someone's opinion on a run that will be most likely muted before it even gets started.
    23 Aug 2014, 02:10 PM Reply Like
  • nino91007
    , contributor
    Comments (417) | Send Message
    Now we know what to short.
    23 Aug 2014, 03:04 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11177) | Send Message
    I am suspicious of someone who would write a book exposing his supposed fool-proof way to generate alpha. Is killing the Golden Goose ever a great idea?
    23 Aug 2014, 05:44 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1911) | Send Message
    Ben Graham doing it never stopped value investing from continuing to work.
    23 Aug 2014, 06:22 PM Reply Like
  • lildimsum7
    , contributor
    Comments (667) | Send Message
    he doesn't care because quants don't last. someone else would've eventually built the magic formula. that magic formula book is mainly a good starter book on how to think about investments
    25 Aug 2014, 02:34 AM Reply Like
  • Mark Krieger
    , contributor
    Comments (6263) | Send Message
    He has a position in $FSYS, as its value metrics fall right in his wheelhouse. It was perfect for his Magic Formula.
    24 Aug 2014, 07:39 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1911) | Send Message
    Mark, HLF was also in the Magic Formula filter for a while, but I'm not sure how great of a pick it is lol. That's the only issue with a quantitative-only approach...
    24 Aug 2014, 10:08 PM Reply Like
  • Equitable Research
    , contributor
    Comments (2209) | Send Message
    Strategy makes sense when you have billions under management and a proven track record. But it would be impossible to get to that position doing the same thing. Hard to beat the benchmark long term when you have over 600 positions.
    24 Aug 2014, 09:36 PM Reply Like
  • Hoopono
    , contributor
    Comments (381) | Send Message
    OK, thanks for the clarification.
    24 Aug 2014, 10:29 PM Reply Like
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