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Hey everyone, how's it going? I'm back, playing some videos about market personalities, and this gentleman is on the screen, he 's Joel Greenblatt, a great investor and professor at Columbia University. He became very famous for the book he wrote, which I haven't translated into Portuguese, called "The Stock Market Within Your Reach." In this book, Greenblatt presents one of his techniques, which he calls the "magic formula." Tell me a little about his story.
He was a great fund manager from 1985 to 2006. He was also the founder of Goten Clapton, and he had an exceptional return, truly incredible, saying more than 40% per year within his fund. He applied precisely this technique, which he calls the "magic formula." What I find most amusing when we start studying these personalities is that these greats use a simple technique to analyze their investments.
They simply want to buy stocks that are cheap. But how do they arrive at this? How do they assess whether a stock is cheap or not? He's also a lover of volume investment, as I told you, he pays for value and doesn't look at price. He valued the company and used 22 fundamental indicators, which was the P/E ratio (price-to-earnings ratio), which is widely used by analysts, and he also used the return on invested capital (ROI).
He would take a certain number of companies and evaluate those with a P/E ratio below average, meaning low profits, but high returns on capital. So, companies with high P/E ratios and low P/E ratios, which he considered undervalued, would operate at a low cost. He would then reach a consensus, filter out 50, and select the 5 best companies with high P/E ratios and high ROIs.
He invested in these companies. Using this " magic formula" technique, he achieved good results for several years. As I said, these are simple data points; every company discloses its P/E ratio and its ROI. You can easily find this data to evaluate the company and use the formula technique. The magic of the Latin verb...
I wanted to record this video just to show you the interesting fact that great managers, great professionals, always use techniques, they have a lot of discipline, so they apply these techniques to themselves over many years and manage to have consistent profits. Remember, for example, it wasn't the debate team that developed an old investment strategy.
You have Benjamin Netanyahu, who is older than him, and he also uses this technique. So it's simple: you pay the value for that company, and in this period that we are seeing now, evaluating several companies, they will be within the realm of pride and would like to acquire it. I hope you liked it. Here's a little tidbit about a great investor.
Here's a tip for you: research a little more about him, about his career, and then I'll make more videos with other great investors. I hope you liked it. Thank you everyone.
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