Value Investing, Videos

Joel Greenblatt On Big Picture Thinking – The Truth About Value Investing

In this video we’re going to talk about how you can use big picture thinking to beat the market. And we’re going to do it with the help of the famous value investor Joel Greenblatt.

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Joel Greenblatt Big Picture Thinking

Joel Greenblatt On Big Picture Thinking - The Truth About Value Investing

Transcript

What's going on investors they came from. And today we're going to talk about the importance of big picture thinking and investing and hopefully with this video we will help you get out of the minutia and help you think big. Which is really going to help your returns. Example we're going to use for this video is Joel Greenblatt. Now Joel is a very famous value investor who wrote a book called The Little Book That Beats the Market. And that book made the magic formula that he created for value investing very popular as well. He also created the value investing club website. And he's a professor of Columbia's business school. So in his courses at Columbia he often talked about how he was only average at valuation. He wasn't that amazing at valuing companies he had just a little bit of edge there. What he was actually really good at and where you had a lot of edge was putting a bunch of information into context. He was good at viewing the bigger picture and pinpointing what actually met. Here's a quote from explain the big picture your predecessors MBA failed over a long period of time. It has nothing to do about their ability to do a spreadsheet. It has more to do with the big picture I focus on the big picture. Think of the logic not just formant. It is so important to focus on what's important to me investors just get lost in small minute details. They don't actually matter.

The last thing you want to do in investing is focus on the trees so hard that you miss the forest and there's a lot of different ways this happens in the market. So Taig value investing for example in value investing a lot of the edge in the calculations to value something has been eating away. A computer does it pretty easily. We actually talked about this in a previous video about the old style of value investing not working anymore. If you haven't seen that link to it above so a problem I see with a lot of new investors is that they get obsessed with small small details in their analysis. So for example they come out of school learning how to use accepte and they keep plugging numbers into their spreadsheets and they're so excited when it spits something out or just Fritchey calculations actually spitting out anything important that could be used to make money in the market. Well usually it's not at least for the beginner if you want to see an example of this just jump on Seeking Alpha and look at the comments underneath the article. These guys debate every small detail that doesn't affect the overall investment thesis. The most successful guys are thinking beyond just these numbers they're not stuck in their myopic point of view. Like Joel Greenblatt said they're looking at the bigger picture and trying to fit the pieces together.

Another place where this happens is with trend traders so maybe they stumble upon a really great tranced and if you see a really great trend you should be able to make a lot of money out of it but know what he's gonna end up doing is try to snipe their entries and exit and trade around the track and in doing so they just end up overtrading and missing a majority of the money and their mentality there is that OK if I can just trade this perfectly again and that exactly the right time and get out at the right time I can make a lot more money. Why do I have to sit through all these dips. But again they're focusing on the wrong thing. You shouldn't be trying to short term trade every dip and rally the big picture is the big print you need to put yourself in it and be patient and sit on your hands. Another thing that Joel said that's interesting is that you need to focus on the logic and not just the former. Now this really applies when it comes to Kwon's one of the biggest problems with backtesting is when you overdo it and find some random correlation that ends up making money. But the problem is if you just back tested data like that and found something it doesn't always mean that thing is robust. Oftentimes it blows up and leaves you enough and that's the whole issue with data mining. So the best Clontz when they're coming up new strategies is they're starting with something that makes logical sense. They're breaking it down to the first principles and then seeing if the data supports what they thought. They're not just mining data trying to find some random correlation. They think deeper and try to look at the bigger picture of why something would work. Now in some ways markets are always changing right. I mean there's new assets new strategies and new technologies all the time.

I mean technology is always changing so there's always going to be new markets and new strategies. So if you want to focus on the big picture markets in general then you need to drill down on the principles of markets that don't change. So for example one of the reasons why we talk about psychology so much on this channel is because that's one constant even as the markets continue to change. Markets are created by humans interacting in human psychology doesn't change. So you're better off focusing on the big picture which is the human psychology and learning how to understand that. So what are you focused on in your training or are you looking at the big picture or are you stuck in the details. Let me know in the comments what you think is the most important part to focus on in your process. If you haven't already make sure you subscribe to this channel hit that bell for notification video be published about three a week. All market and business related. So subscribe and I'll see you in the next one. They fell a lot there by.