Joel Greenblatt Rare Interview On Magic Formula [VIDEO]

Joel Greenblatt of Gotham Asset Management, weighs large cap versus small cap stocks, and shares his formula for investing.


well, it earns lots of cash, selling at a low multiple. it’s got a great eco system of products. so i think if someone offered you this whole company at these prices, you would think they were a little bit crazy. i think the stock is low and couple of things i’ve learned in my mid 50s, you know, one is i don’t fight a land war in asia and another is didn’t disagree with carl icahn and cnbc. almost one year ago today, as a matter of fact. probably two good things to learn. let’s talk about what you do. this magic formula to investing. people want to know what that is. well, first of all, it’s not magic. it was a term i used in my book really to teach some simple concepts which is ben graham always said if you can buy it cheap, figure out what something is worse and pay a lot less. these are not pieces of paper that bounce around, these are companies. figure out what it’s worse, pay a lot less. best student warren buffett made a twist that made him one of the richest people in the world. if i could buy good business cheap, even better. and so it was those two con accepteds that was, quote, unquote, magic. how does the market look to you today as we are all trying to figure out where we’re going? we looked back over several decades of valuations and covered 3,000 largest companies in the u.s. in our research effort and big research team. so we do have a bottoms up standpoint. russell 1,000, stock number 1 to 1,000. right now we’re in about the 38th percentile over our valuations. in the past when we’ve been at these valuation levels it’s been up 10% over the next year. it’s a different story for small caps. russell 2,000 is stocks number 1001 to 3,000. it’s in the fitth percentile. it’s been cheaper 95% of the time over the last several decades. and when it’s been here in the past, the year forward return has been a negative 3%. so large caps have a little bit better prospects than small caps. these are the indexes. there are opportunities. ray of bridgewater was on