Master of Value: The Legacy and Wisdom of Joel Greenblatt
Biography of Joel Greenblatt
Joel Greenblatt, born on December
13, 1957, is a prominent figure in the world of finance, known for his roles as
an academic, hedge fund manager, investor, and writer. He is recognized as a
value investor, having honed his skills at the Wharton School of the University
of Pennsylvania, where he earned his degree. Currently, he serves as an adjunct
professor at the Columbia University Graduate School of Business.
Greenblatt is the co-founder of Gotham Asset Management, a
notable hedge fund firm, where he collaborates closely with his partner, Robert
Goldstein. Prior to this, he held the position of chairman of the board at
Alliant Techsystems from 1994 to 1995. Additionally, he is credited as the
founder of the New York Securities Auction Corporation, demonstrating his
entrepreneurial spirit and innovation in the financial sector.
Joel Greenblatt: Early Life and Education
Joel Greenblatt, hailing from Great Neck, New York, embarked
on his academic journey at The Wharton School, University of Pennsylvania. Graduating
with distinction, he earned his Bachelor of Science degree with highest honors
(summa cum laude) in 1979, followed by an M.B.A. in 1980. His academic
achievements laid the foundation for his future success in the field of
finance.
Academic Endeavors and Publications
During his time at The Wharton School, Greenblatt
demonstrated his keen interest in finance through his research and
publications. Notably, his paper titled "How the small investor can beat
the market" was published in The Journal of Portfolio Management,
showcasing his early insights into investment strategies and market dynamics.
Transition to Finance Career
Following his academic pursuits, Joel Greenblatt briefly
explored the field of law, enrolling at Stanford Law School in California.
However, after a year of study, he made the pivotal decision to leave the
program and pursue a career in finance. This marked the beginning of his
illustrious journey in the financial industry, where he would eventually become
a renowned investor, hedge fund manager, and academic figure.
The Evolution of Joel Greenblatt's Hedge Fund Ventures
In 1985, Joel Greenblatt launched Gotham Capital, a hedge
fund, with an initial investment of $7 million, a significant portion of which
came from Michael Milken, known as the "junk-bond king." Over the
years, Greenblatt's leadership at Gotham Capital yielded remarkable returns,
averaging an annualized return of 50% before incentive allocation fees and 30%
net of all fees between 1985 and 1994. The fund specialized in "special
situations," focusing on opportunities such as spinoffs and corporate
restructurings.
In 1989, Robert Goldstein joined Gotham Capital, adding
depth to the management team. However, by January 1995, Gotham Capital decided to
return all capital invested by outside partners, amounting to approximately
$500 million. Despite its successful track record, the fund opted to close its
doors to external investors at this time. Following the closure of Gotham
Capital to outside investors, Joel Greenblatt transitioned to a new phase in
his career. Stay tuned for the next chapter in his financial journey.
Gotham Capital's Role in Scion Capital's Genesis
In 2000, Gotham Capital facilitated the establishment of
Michael Burry's hedge fund, Scion Capital, by investing $1 million after taxes
and acquiring a 25% stake in its capital. Over time, Gotham's investment in
funds managed by Scion grew significantly, reaching $100 million by October
2006. However, during the Subprime mortgage crisis, Gotham took legal action
against Michael Burry due to his shorting of the housing market. Eventually,
Gotham exited its investments in the managed funds by Scion Capital, as well as
its shareholder position.
Transition to Gotham Asset Management
Following these developments, Gotham Capital underwent a
transformation, giving rise to Gotham Asset Management, LLC in 2008. Positioned
as "the successor to the investment advisory business of Gotham
Capital," the newly formed entity marked a shift in focus within the
investment landscape. In 2010, Gotham ventured into the realm of conventional
mutual funds, launching four funds and raising a total of $360 million in
investments.
Growth and Success of Gotham Asset Management
Over the years, Gotham Asset Management, LLC has experienced
substantial growth, with assets under management reaching $3.74 billion as of
December 2021. This growth underscores the adaptability and resilience of Joel
Greenblatt's ventures in navigating the complexities of the financial markets.
Joel Greenblatt: Educator and Advocate for Value Investing
For more than two decades, Joel Greenblatt served as an
adjunct professor at Columbia University's Graduate School of Business,
imparting valuable insights on value investing to MBA students. His dedication
to teaching and mentoring has contributed to the education and development of
future finance professionals.
Value Investors Club: Fostering Investment Excellence
In collaboration with John Petry, Joel Greenblatt co-founded
the Value Investors Club, a prestigious online platform where approved investors
share value and special situation investment ideas. With membership capped at
250 individuals, the club is highly esteemed within the investment community.
Academic research has demonstrated that recommendations made by club members
yield significant abnormal profits, highlighting the quality of insights shared
within the platform.
Master of Value: The Legacy and Wisdom of Joel Greenblatt
Recognizing Excellence: Awards and Recognition
The Value Investors Club recognizes and rewards exceptional
contributions from its members by awarding $5000 bimonthly to those who provide
the best investment advice. This incentive promotes a culture of excellence and
collaboration among members, further enhancing the club's reputation as a hub
for high-quality investment ideas and analysis.
The Magic Formula Investing Strategy
Joel Greenblatt's book, "The Little Book That Beats the
Market" (Wiley, 2005 & 2010), introduced the investment strategy known
as "magic formula investing." This method focuses on identifying
"cheap and good companies" with a high earnings yield and a high
return on invested capital. Featured in "The Guru Investor" by John
P. Reese, Greenblatt's strategy has garnered attention for its potential to
outperform market averages over the long term.
Performance and Characteristics of the Magic Formula
Studies conducted globally have found that Greenblatt's
formula tends to deliver long-term outperformance relative to market averages.
However, it is also associated with higher short-term volatility and sharper
drawdowns due to its concentrated approach of investing in 20–30 stocks.
Despite these fluctuations, the strategy's track record has attracted investors
seeking above-average returns.
Formula Investing: Bringing the Strategy Online
In October 2009, Joel Greenblatt launched a website for
Formula Investing, offering an online tool that follows the investment strategy
outlined in his book. This platform provides investors with a convenient way to
implement the magic formula strategy, offering insights and guidance to assist
in their investment decisions. By making the strategy accessible online,
Greenblatt aims to democratize value investing principles and empower investors
to achieve their financial goals.
Joel Greenblatt's Literary Contributions
Joel Greenblatt's literary journey began in 1997 with his
first book, "You Can Be a Stock Market Genius: Uncover the Secret Hiding
Places of Stock Market Profits." This early work delved into
unconventional investment strategies, aiming to empower readers to uncover
hidden opportunities in the stock market.
The Little Book Series: A Breakthrough in Investment
Strategy
In 2005, Greenblatt published his second book, "The
Little Book That Beats the Market," which became a New York Times
Best-Seller, selling over 300,000 copies. This book introduced Greenblatt's
renowned "magic formula investing" strategy, capturing the attention
of investors seeking a systematic approach to outperforming the market. In
response to the 2007–2008 financial crisis, the book was updated and
re-released in 2010 as "The Little Book that Still Beats the Market,"
providing timely insights for navigating turbulent economic times.
The Big Secret for the Small Investor: Navigating Long-Term
Success
In 2011, Greenblatt released "The Big Secret for the
Small Investor: A New Route to Long-Term Investment Success." This book
offered a fresh perspective on long-term investment success, providing readers
with actionable strategies tailored for individual investors navigating the complexities
of financial markets.
In 2020, Greenblatt further expanded his literary repertoire
with "Common Sense: The Investor's Guide to Equality, Opportunity, and
Growth." In this book, he shared an investor's perspective on building an
economy that works for all, addressing crucial issues of equality, opportunity,
and growth. Through his writings, Greenblatt continues to inspire and educate
investors worldwide, offering valuable insights into the principles of
successful investing and the broader societal implications of economic
policies.
Joel Greenblatt's Philanthropic and Educational Endeavors
In 2002, Joel Greenblatt demonstrated his commitment to
education by donating $2.5 million to P.S. 65Q, a public elementary school in
Queens. This generous contribution aimed to support students from predominantly
South American and South Asian immigrant communities, providing resources
equivalent to about $1,000 per student per year over a span of five years.
Empowering Communities Through Charter Schools
In 2006, Greenblatt co-founded the Success Academy Charter
Schools, initially established as the Harlem Success Academy Charter School.
Located in a historically African-American neighborhood, this elementary school
aimed to provide quality education and opportunities for students in the local
community.
Service on Educational Boards
Beyond his contributions to education, Greenblatt has also
played an active role in various organizations. He has served on the boards of
the Institute for Student Achievement, focusing on improving educational
outcomes, and the Davidson School of the Jewish Theological Seminary,
contributing to the advancement of Jewish education.
Advancing Cancer Research Through Collaboration
During 2007 and 2008, Greenblatt, along with Robert
Goldstein and Gary Curhan, embarked on a philanthropic endeavor to advance
cancer research. Inspired by the Value Investors Club, they created a website
to facilitate idea sharing among researchers. The initiative culminated in the
establishment of the $1 million Gotham Prize for Cancer Research, awarded in
2008 to Alexander Varshavsky for his work on identifying potentially vulnerable
features of cancer cells
Promoting Financial Literacy and Charitable Giving
Additionally, Greenblatt has been actively involved in
fostering financial literacy and charitable giving through initiatives like
Portfolios with Purpose. As a founding Master Player of this virtual stock
trading contest, he encourages individuals to engage in philanthropy while
honing their investment skills. Through these initiatives, Greenblatt continues
to make a positive impact in both the educational and charitable spheres.
Overall, Joel Greenblatt's legacy encompasses not only his
pioneering investment strategies but also his dedication to educating others
and making a positive impact beyond the financial realm. He remains a respected
figure in the investment community, with his principles continuing to guide
investors seeking long-term success.
