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."