Joel Greenblatt’s Background:

Joel Greenblatt was well educated and spent his first 10 years after graduation working in reputable financial firms, before starting Gotham Capital.

Joel Greenblatt is a self-proclaimed mix of Warren Buffett and Benjamin Graham. That means he wants to buy good companies cheap. Or, to put it another way, “quality at a low price”.

Joel Greenblatt is the generation of value investors just after Peter Lynch.

He wrote the book The Little Book that Beats the Market.

Joel Greenblatt invented the “Magic Formula” which is a systematic way of investing that has worked since inception. But it requires discipline and patience, not something that youngsters have today with social media and Tiktok.

Lessons from Joel Greenblatt:

• Weigh value against growth
• Buy companies with high ROIC (Return on invested capital)
• Buy companies with high ROTE (Return on tangible equity)
• Buy companies with high ROTB (Return on tangible book)
• In both cases above, Goodwill should be excluded
• Joel Greenblatt’s magic formula is to divide a company’s EV/EBIT ratio by its ROIC. Then rank the companies in a list, with the one with the highest performance at the top, as the most undervalued.
• However, it excludes most other companies on the stock exchange, which do not earn the majority of their income from reinvestment (ROIC).
• Don’t look for the cheapest stocks; don’t look for the best stocks either. Look for the stocks that have the highest return per capital, the companies that are the cheapest in relation to their share price.
• However, you need a large number of them and you need to rebalance it every year.
  
• If you like Joel Greenblatt’s magic formula, you are probably not a dividend investor.

Read on: About the strategies of other famous value investors.