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After he started his hedge fund back in 1985, over the following 10 years, Joel Greenblatt realized an average annual return of 50%. Let’s find out where he’s investing today! Hey there, for those of you who don’t know me, my name is Stephen Spicer, and it’s my goal to help you invest smarter. And one of the best ways to do that is by learning from the investment “greats.” And one of my favorites, is Joel Greenblatt.
I’m gonna give you a brief history of this legendary investor (so you know why you should listen!), then, we’ll look at what he’s doing now and why it’s different from before, and finally, we’ll explore his top 15 holdings (and 1 short) to hopefully give you some ideas for your next deep dive. -- Now, if you’ve followed me of any amount of time you know that I’m a fan of Mr.
Greenblatt. His style resonates with me and I can’t help but learn a lot every time I hear him speak. In fact, earlier this week I released a video walking through his brilliant metaphor comparing the stock market to a jar of jelly beans. If you haven’t seen that one yet, you should check it out. I’ll link to it in the description.
I’ll also link to one of my most popular videos - one I released about a year about - diving into Greenblatt’s Top 5 Lessons. And each of those lessons is critical for an active value investor’s long-term success. The reason I particularly like listening to and learning from him, is because he found opportunities in places and through means that are accessible for you as well.
What I mean by that is, he wasn’t using any out-of-reach technologies or proprietary algorithms to find these gems with insane upside potential. And he was primarily (at least at the beginning of his career) investing in smaller companies, which is an area of the investment world where the smaller investor will always have the advantage.
(I talked about this concept ad nauseum in a video I did for Ryan Scribner’s channel a while back.) I already mentioned that from 1985 through 1995, Greenblatt’s fund averaged 50% per year. That’s impressive. So, you might ask, why did he close down the fund if things were going so well? That’s a great question and the answer is a brilliant nod to the treasure trove that is the world of smaller-cap, lesser-covered stocks.
He and his main partner, Robert Goldstein, noted that above a certain threshold, it would be harder for them to realize the kinds of returns they had been. That’s because they’d be too large to make meaningful investments in these smaller, clearly-undervalued companies. So, they capped their fund’s size at $500MM.
For a while they were just returning the gains to the partners, until 1995, when they had enough themselves and decided to just kick everyone else out. They returned all the capital to their partners, closed down the fund, and managed it - just the two of them - for the next decade. Since it was totally private between the two of them, there isn’t a public reporting of their year-by-year returns like that first decade, but in an interview with the Wall Street Journal, Greenblatt revealed that the annualized return over that 2-decade period - from 1985 through 2005 - was around 40%.
Again, that’s beyond impressive to achieve those high return levels consistently for 20 years. That definitely qualifies him as a proven skilled value investor from whom we all should learn as much as we can. Now, if you’re interested in learning directly from him, he’s written several interesting and witty books.
As to which one I’d recommend you start with, well, that depends on you and where you’re at. So, because I get asked about the best investment books a lot, I thoughtfully put together a page that highlights all my favorites (whether you're just beginning or already a pro looking to expand your knowledge).
I included thoughtful commentary to help you know which of the many would be most appropriate for you based on your interests and existing knowledge… you’ll see what I mean when you get there, the link is in the description. I sincerely hope it helps guide you to your next investment breakthrough! And I hope you’ll tell me about it when you get there!
-- So, for me, Greenblatt’s record, puts him right up there in that exclusive investment-legend club, that includes Peter Lynch with his 13-year, 29% record and Warren Buffett with his 50+-year, 20% record. There’s so much to learn from all of these guys… In this video, specifically, we’re gonna look at what Greenblatt is doing today.
-- After closing down his fund in 05, he started focusing more on his philanthropy, he wrote several books since that time, and he began researching strategies that could be applied successfully on a broader scale - not just for relatively smaller funds able to dabble in small caps. Today, he manages long/short mutual funds, so they’re available to most investors.
And, more importantly, they’re investing more than $6B now - quite a bit more than the $500MM at which they’d capped themselves before. So, keep that in mind as we go through his holdings - they’re different than before. This is a broader more mass appeal. Due to his size, some of the opportunities that he might have pounced upon in the past, would not be a meaningful option for him today.
So, if you’re trying to invest like he used to - like he details in You Can Be A Stock Market Genius - like I often invest - the ones I’m about to run through, won’t be those opportunities. But if you’re looking for value opportunities in the larger-cap world - like, solid S&P 500 companies - then these might be a good place for you to start your research.
And that’s why I’m doing this. So, I’m going to share with you his fund’s top 15 holdings as of its last reporting. Then, I’m also gonna share with you one short, that he disclosed recently in a CNBC interview, that I found interesting ...and I think you might too! Alright, so, as I read through this list of 15, I think it’d be most prudent - if you’re looking for large-cap stocks that Greenblatt has identified as being undervalued - for you to pay special attention to the ones with a smaller market valuation.
Think about it, this fund (as of its last reporting) holds 965 stocks! So, it makes sense that some of the largest companies in the world will show up in his Top 15 holdings. You know what I mean? I would expect Apple, if he owns any, to represent a decent % of his portfolio, relative to the others, because it’s just SO big (same with Amazon and Alphabet).
But when you see other companies - companies that 8 or 30 times smaller than Apple - representing a similar allocation weighting in his portfolio… those are the ones I’d dig into! Now, since I am about to talk about individual stocks, I do have to say that I am also a practicing registered investment advisor.
So it’s important to me that you understand that these are not recommendations in any way. I don’t know your particular circumstances. I’m just going to point out some facts about these companies and tell you why they’re interesting to me right now - and if they seem interesting to you, you should definitely conduct your own research and analysis to decide if they fit in your portfolio and make sense for you specifically.
My goal with videos like this is to help you identify different aspects of the research process and expose you to some different ideas - so that if something piques your interest, it can be a good starting place for your own deep dive. With that in mind… here’s that list: Honeywell International - HON - $122B Verizon Communications - VZ - $235B Apple - AAPL - $964 Altria Group - MO - $103B PayPal Holdings - PYPL - $126B International Business Machines - IBM - $124B Amazon - AMZN - $937B Alphabet - GOOGL - $878B United Technologies - UTX - $122B Walmart - WMT - $294B Micron Technology - MU - $48B Raytheon - RTN - $52B Lockheed Martin - LMT - $92B Procter & Gamble - PG - $257B HP Inc - HPQ - $30B So, again, I’d pay special attention to those smaller companies that “somehow” made it into Greenblatt’s Top 1.5% of all his 965 stocks.
And honestly, you could just continue down that list and find some pretty small companies weighted relatively heavily in his fund. I link you to an updating list in case you want to use that trick for your own discovery process as you search for the next stock you want to dive into. One last stock I want to share with you is the company Greenblatt mentioned as one of his favorite shorts right now.
Now, remember, this is a long/short fund - they’re long a lot of stocks and they’re short a lot of stocks, well diversified on each side, the idea being that this will best position them, come what may - a lingering bull or a devastating bear! But there are definitely some risks involved with shorting, so don’t just go out and bet it all on this one short ...or any, for that matter - that would be ill-advised - understand what you’re doing first - we can cover the details of shorting another time if you’re interested.
But, the stock that he mentioned being short, is Align Technologies. The $23B maker of Invisalign - you know? The clear braces alternative. Well, he says that the company is trading at extremely elevated multiples - as a simplistic example of this, the company’s PE Ratio is 58, as of this recording.
Whereas its industry is 39 and the market is only 18. It’s PB Ratio is 19, compared to its industry’s 4 and market’s 2. His main case seemed to be that they don’t deserve these multiples anymore as most of their patents are coming up. I know I’ve started to see a lot of knock-off commercials now for invisible braces for a FRACTION of the cost!
Add to that, they’ve had a pretty steady stream of insider selling over this last year… I definitely wouldn't want to be long right now. I’m interested in diving deeper to see if a short position would make sense for me. Now, they don’t have any debt and they do have a lot of cash sitting around, so for me, that’ll weaken the case for a short.
But I guess we’ll see… What do you think? Which of these companies are you most interested in exploring more? I hope this information has given you some ideas for what you could research next. I’ve got some more coming your way, so I hope you’ll subscribe and click that notification bell to join us on this journey!
I can’t wait to catch you in the comments! I sincerely do wish you all the best! Take care!
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