via market folly by marketfolly@gmail.com (Market Folly) on 10/17/11
At the Value Investing Congress today, Joel Greenblatt of hedge fund Gotham Capital gave a presentation entitled "The Big Secret For Value Investors".
Be sure to check out all of our notes from the Value Investing Congress.
Joel Greenblatt (Gotham Capital): Value Investing
His mantra is to buy good quality companies trading at cheap valuations. He also likes buying companies with low expectations as many managers ignore these names due to performance pressure from investors.
He looks at the market right now and sees his value-weighted index of stocks with a free cash flow yield of 13.7% and the forward return should be around 30-35% versus 10-15% for the overall market.
Greenblatt rattled off some companies that pop up on his screens of companies that have current problems but have around 15% free cash flow yield: GameStop (GME), Best Buy (BBY), Aeropostale (ARO), Hewlett Packard (HPQ), Dell (DELL), Microsoft (MSFT), General Dynamics (GD), Wells Fargo (WFC), and Merck (MRK). He says that at these multiples, the market believes that these future free cashflow yields won't last.
Greenblatt says that you can create a long/short portfolio by shorting the stocks that are the most expensive that have the lowest earnings yield. He also thinks that the Russell 1000 is cheap.
About Joel Greenblatt: He manages Gotham Capital and saw 40% annualized returns for 20 years. He's the author of the new book The Big Secret for the Small Investor: A New Route to Long-Term Investment Success. And for aspiring investors, numerous prominent hedge fund managers such as Seth Klarman have recommended Greenblatt's other book: You Can Be a Stock Market Genius.
You can view our notes from the Value Investing Congress for the rest of the hedge fund manager presentations.
