This week, we speak with Joel Greenblatt, co-founder of Formula Investing LLC and managing principal, co-chief investment officer and portfolio manager at Gotham Short Strategies and Gotham Asset Management LLC. He has also been a director of Pzena Investment Management Inc. since October 2007. An adjunct professor at Columbia Business School since 1996, he teaches classes on value and special situation investing. He is the author of You Can Be A Stock Market Genius, and The Little Book That Beats the Market,” and “The Big Secret for the Small Investor.”
Greenblatt explains the challenges of running portfolios intended to outperform the benchmark S&P500. He discusses his strategies at Gotham capital, when he compounded at 50% per year (before fees) for a decade. It was a concentrated, special situations portfolio, with only a few holdings and very large drawdowns. Even institutional clients balked at the volatility.
His current mutual fund, Gotham Index Plus (GINDX), now three years old, was ranked the top performing fund in its category (large cap mixed) versus its 1200 peers. (Its flat YTD). Starting with the the 500 stocks in the S&P index (owned individually for tax efficiency), the plus part is a 90% leverage long for 250 favorite stocks, proportionately to Greenblatt’s ratings; another 90% is short the other 250, also in proportion to how much he dislikes their prospects. It is scalable, with a 100 basis point fee — relative modest for a hedge fund substitute.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Soundcloud. Our earlier podcasts can all be found on iTunes, Soundcloud, Overcast and Bloomberg.
Next week, we chat with Patty McCord, the chief talent officer at Netflix for 14 years, and author of the new book, Powerful: Building a Culture of Freedom and Responsibility:
Joel Greenblatt’s Authored Books
The Little Book That Still Beats the Market by Joel Greenblatt
Joel Greenblatt’s Favorite Books
Moneyball: The Art of Winning an Unfair Game by Michael Lewis
The Invisible Heart: An Economic Romance by Russell Roberts
Summary: Never Split the Difference: Negotiating As If Your Life Depended On It by Readtrepreneur Publishing