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Posts Tagged ‘Joel Greenblatt’

Man versus Magic Formula: Joel Greenblatt’s Value Investors’ Club vs his Little Book

Posted in Quantitative investment, Stocks, Strategy, tagged , , on May 22, 2012 | 1 Comment »

The only fair fight in finance: Joel Greenblatt versus himself. In this instance, it’s the 250 best special situations investors in the US on Joel’s special situations site valueinvestorsclub.com versus his Magic Formula. Wes Gray and crew at Empiritrage have pumped out some great papers over the last few years, and their Man vs. Machine: Quantitative [...]

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How To Beat Most Active Managers: A Performance Analysis of Fundamental Indexation With Different Price Ratios

Posted in Stocks, Quantitative investment, Behavioral economics, Strategy, tagged , , on May 21, 2012 | 1 Comment »

The rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based on the market capitalization-weighted [...]

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Chart of Equal-Weight S&P500 Index vs Market Capitalization-Weight Index

Posted in About, Stocks, Behavioral economics, Strategy, tagged , , , on May 18, 2012 | Leave a Comment »

It’s a year old, but it’s still sweet. A chart from Tom Brakke’s Research Puzzle pix comparing the performance of the S&P500 and its equal weight counterpart from 2000 to March 2011: Tom thinks the phenomenon might reverse: At some point, however, this trade will flip back in a major way and the market-weighted indexes will [...]

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Why Does an Equal-Weighted Portfolio Outperform Market Capitalization- and Price-Weighted Portfolios?

Posted in About, Stocks, Contrarian investment, Behavioral economics, tagged , on May 17, 2012 | 1 Comment »

Yesterday I took a look at the different ways of structuring an index suggested by Joel Greenblatt. Greenblatt finds that an equal-weight portfolio far outperforms a market capitalization weight portfolio. And for good reason. Greenblatt says that market cap weighted indexes suffer from a systematic flaw – they increase the amount they own of a particular [...]

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Equal Weight and Fundamental Indexing Beats The Market

Posted in About, Stocks, Value Investment, Quantitative investment, Behavioral economics, Strategy, tagged , , , on May 16, 2012 | 3 Comments »

Joel Greenblatt’s rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based [...]

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Value-Weighted Indexing: The Problem with Active Management

Posted in Stocks, Value Investment, Behavioral economics, tagged , on May 15, 2012 | 4 Comments »

Joel Greenblatt’s rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based [...]

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Joel Greenblatt’s solution to value investors’ behavioral errors

Posted in About, Stocks, Quantitative investment, Behavioral economics, Strategy, tagged , , on May 14, 2012 | 2 Comments »

Last week I looked at James Montier’s 2006 paper The Little Note That Beats The Market and his view that investors would struggle to implement the Magic Formula strategy for behavioral reasons, a view borne out by Greenblatt’s own research. This is not a criticism of the strategy, which is tractable and implementable, but an observation on how pernicious our [...]

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How to beat the market: Joel Greenblatt’s List of Four Things Not To Do

Posted in Stocks, Strategy, tagged , on May 10, 2012 | 1 Comment »

Investors struggle to implement the Magic Formula strategy for behavioral reasons. They take a market beating model and proceed to underperform. Greenblatt found that a compilation of all the “professionally managed” accounts earned 84.1 percent over two years against the S&P 500 (up 62.7 percent). A compilation of “self-managed” accounts over the same period showed a cumulative return of 59.4 percent, losing [...]

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Joel Greenblatt on how and why investors struggle to follow the Magic Formula

Posted in Stocks, tagged , , , on May 9, 2012 | 9 Comments »

Yesterday I looked at James Montier’s 2006 paper The Little Note That Beats The Market and his view that investors would struggle to implement the Magic Formula strategy for behavioral reasons. The Magic Formula is a logical value strategy, it works in backtest, and, most importantly, it seems to work in practice, as this chart [...]

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James Montier on why investors struggle to follow the Magic Formula: Cognitive Biases and Behavioral Errors

Posted in About, Stocks, Behavioral economics, Strategy, Enterprise Value, Enterprise Multiple, tagged , , , on May 8, 2012 | Leave a Comment »

In his 2006 paper, “The Little Note That Beats the Markets” James Montier backtested the Magic Formula and found that it supported the claim in the “Little Book That Beats The Market” that the Magic Formula does in fact beat the market: The results certainly support the notions put forward in the Little Book. In all [...]

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