After listening to the tape, I can see how 40% gains since 1985 could be achieved: He holds between 5-8 stocks.
First, I question the veracity of those reported figures. I don't recall anybody saying those 40% gains numbers were checked and confirmed by an independent auditor. And I don't know skewness of the numbers, if any. That is, were the gains 300-400%-500% in early years with less stellar returns in later years, such that overall it was/is a 40% annualized gain from 1985? I assume they're managing over $1B now, so my guess is that with 5-8 stocks or even more, 40% gains going forward are iffy. (They might have to focus on large cap stocks which they say have less return than small caps.)
Kind of have to watch these guys or the interviewers. Can't really be fair to say, for example, that here's a guy who's written this great how-to book, and he's got the real world results to back it up (those great returns since 1985), when the tactics recommended in the book (website) apparently don't exactly match the tactics used by Mr. Greenblatt, et. al. to get those 40% gains.
Also, there should be a consideration for risk vs. reward. I can envision many people each buying 5-8 stocks using different techniques, and over time a few people randomly emerging as big winners based on their luck of picking a few spectacular stocks. That luck doesn't justify saying the methodology the particular person used is valid.
OTOH, 30 stocks ought to confirm the importance and significance of the methodology, and that did occur with some backtesting, if I am understanding this right. (I've not read the book.) 30 stocks would change the risk/reward ratio for the participants of the method and tactics, and as Mr. Greenblatt asserts, nobody with 30 stocks should expect to get results close to the 40% he got. Still... even if people got close to 22% (was that what I heard for small caps on the interview?), that is absolutely terrific in my opinion and experience. So I'm certainly interested in viewing stocks on his screens. |
