Joel Greenblatt

Joel Greenblatt (born December 13, 1957) is an American academic, hedge fund manager, investor, and writer. He is a value investor, alumnus of the Wharton School of the University of Pennsylvania, and adjunct professor at the Columbia University Graduate School of Business. He runs Gotham Funds with his partner, Robert Goldstein. He is the former chairman of the board of Alliant Techsystems (1994–1995)^[1] and founder of the New York Securities Auction Corporation. He is also a director at Pzena Investment Management, a firm specializing in value investing and asset management for high-net worth clients.^[2]

Early life and education[]

Greenblatt was born in Great Neck, New York. Greenblatt is a graduate of The Wharton School at the University of Pennsylvania, receiving his B.S. summa cum laude in 1979 and M.B.A. in 1980.^[1] At Wharton, his paper "How the small investor can beat the market" was published in The Journal of Portfolio Management.^[3] Greenblatt spent one year studying law at Stanford Law School in California before dropping out to pursue a career in finance.^[4]

Career in finance[]

From Gotham Capital To Gotham Asset Management[]

In 1985, Greenblatt started a hedge fund, Gotham Capital, with $7 million, most of which was provided by "junk-bond king" Michael Milken.^[5] Robert Goldstein joined Gotham Capital in 1989.^[1] Through his firm Gotham Capital, Greenblatt presided over an annualized return of 50% ("after all expenses" but "before general partner's incentive allocation" fees) or 30% (net of fees^[6]) from 1985 to 1994 by investing in ""special situations" like spinoffs and other corporate restructurings".^[7][8] In January 1995 Gotham returned all capital of outside partners (approximately $500 million).^[8]

From 1995 to 2009 Gotham Capital was closed to outside investors.^[8]

In 2000 Gotham Capital helped Michael Burry creating his hedge fund Scion Capital by buying 25% of its capital for one million dollars after taxes.^[9] This was the first time Greenblatt helped or partnered with an outside investor. In October 2006, Gotham's investment in the funds managed by Scion amounted to $100 million.^[9] Based on disagreements about Burry's strategy of betting against the US housing market, Gotham Capital and other investors eventually wanted their money back. However, Burry used a provision in his prospectus to "side pocket" (block withdrawals) between 50 and 55 percent of Greenblatt's investment, an amount corresponding to his Credit Default Swap short-bet which was then losing money.^[9] Gotham Capital threatened to sue Burry because it was "wildly unconventional to side-pocket an investment for which there was obviously a market".^[9] On "August 31, 2007, Burry lifted the side pocket and began to unload his own credit default swaps" which was now a very profitable bet as the housing market was in crisis.^[9] The Scion Capital fund was up more than 100 percent. Gotham exited its investments, both in the managed funds by Scion Capital and as a shareholder.^[9] In the 2015 film adaptation of Michael Lewis's book The Big Short, Tracy Letts appears as "Lawrence Fields", a fictionalized composite of Greenblatt and others who'd invested with Burry.

In 2008 Gotham Asset Management, LLC is created as "the successor to the investment advisory business of Gotham Capital".^[1] In 2010, Gotham started four conventional mutual funds raising $360 million.^[8] In January 2014, the mutual funds managed $1 billion. ^[8] Due to new-money inflows this suddenly increased to $4.8 billion in October 2014 and briefly culminated to $13.1 billion in March 2015.^[10] As of November 2019 Gotham Asset Management, LLC manages $5.6 billion.^[11][12][13]

Value Investing Professor[]

Since 1996, Joel Greenblatt teaches Value investing classes for MBA students at Columbia University's Graduate School of Business.^[1][6]

Value Investors Club[]

Greenblatt co-founded a website with John Petry called the Value Investors Club,^[14] where investors approved through an application process exchange value and special situation investment ideas. Membership is capped at 250 members and considered highly prestigious.^[15] A 2012 academic study showed that the recommendations of members do in fact appear to generate significant abnormal profits.^[16] The club awards $5000 bimonthly to members who provide the best advice.^[17]

Magic Formula Investing[]

His book The Little Book that Beats the Market (Wiley, 2005 & 2010) introduced an investment strategy of "magic formula investing", which is a method for determining which stocks to buy: "cheap and good companies" with a high earnings yield and a high return on invested capital. His strategy is featured in The Guru Investor by John P. Reese. Several studies from around the world have found Greenblat's formula tends to result in long-term outperformance relative to market averages, but is also associated with significantly higher short-term volatility and sharper drawdowns due to his concentrated approach of 20–30 stocks.^{[18][19][20][21]}

Formula Investing[]

In October 2009 he launched Formula Investing,^[22] an online money management firm that follows the investment strategy described in his New York Times bestselling book The Little Book That Beats the Market. Formula Investing was a money management firm that uses a proprietary stock-screening system and a disciplined approach to manage portfolios of value stocks. The firm offered its services to individual investors and institutions and to registered investment advisors, who could use Formula Investing as a sub-advisor. Formula Investing used a system that determines portfolio selections based on a combination of their relative cheapness and quality, as measured by earnings yield and return on capital. Formula Investing allowed money to be managed in a disciplined manner that removes factors, like excess emotion and future projections, that often lead to bad investment results. In February 2014, Formula Investing's operations were merged into Gotham Asset Management, the advisor to the Formula Investing Mutual Funds.^[23]

Philanthropy[]

Greenblatt is also famous for his contributions to education in New York City. In 2002, he donated $2.5 million to P.S. 65Q, a public elementary school in the borough of Queens, whose students come largely from the neighborhood's South American and South Asian immigrant communities. This investment, equal to about $1,000 per student per year over five years, helped P.S. 65Q to go from a struggling school to an urban success story almost overnight. He continues to aid the school in Ozone Park currently as they have continued to rise. Recently the school and principal Rafael Morales received a progress report score of A, scoring 98 out of a possible 100 points.

In 2006, Greenblatt also helped start the Success Academy Charter Schools, then known as the Harlem Success Academy Charter School, an elementary school in the city's historically African-American neighborhood.^[24] He is also a board member of the Institute for Student Achievement, a national leader in developing new small high schools and transforming large comprehensive public high schools into small learning communities.^[25]

During 2007 and 2008, Joel Greenblatt, Robert Goldstein and Gary Curhan created a website, inspired by the Value Investors Club, to spur idea sharing in order to advance cancer research.^[26][27] The, finally, unique $1 million Gotham Prize for Cancer Research was awarded in 2008 to Alexander Varshavsky for trying to find a potentially vulnerable feature of cancer cells that won't change during tumor progression.^[28]

Greenblatt is a founding Master Player of the Portfolios with Purpose virtual stock trading contest.^[29]

Bibliography[]

• Greenblatt, Joel (1997). You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. New York: Simon & Schuster. ISBN 0-684-83213-5.
• Greenblatt, Joel (2006). The Little Book That Beats the Market. Hoboken, NJ: John Wiley & Sons. ISBN 0-471-73306-7. Updated 2010 version : The Little Book that Still Beats the Market. ISBN 978-0470624159.
• Greenblatt, Joel (2011). The Big Secret for the Small Investor: A New Route to Long-Term Investment Success. New York: Crown Publishing Group. ISBN 978-0-385-52507-7.^[30]
• Greenblatt, Joel (2011). Le petit livre qui bat le marché [The Little Book That Beats the Market] (in French). Translated by Monet, Roland. Hendaye, France: Valor Editions. ISBN 978-2-36117-001-1.

References[]

External links[]

• Magic Formula Investing Website
• Magic Formula stock picks scored in real time
• Gotham Asset Management Current Investments
• Gotham Funds
• Gotham Asset Management