Greenblatt's Little Book That Beats The Market Message Board

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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market

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From: circlecima	3/9/2006 9:57:23 AM
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Heard Mr. Greenblatt this morning. Really, there was very little new that you don't already know if you have read the book and this board. A few items: He was asked about going long the top decile names and short the bottom decile names. He said that strategy would actually add volatility. Every 7 or 8 years, something blows up and the good stocks (which you are long) go down and the bad stocks (which you are short) go up. He was asked about standard deviations and sharpe ratios. He said they ran those numbers but did not put in book because it's not the right way to think about risk. If you are buying a piece of a business for less than it's worth, then you shouldn't care about the share price bouncing a round a bit. He did say that sharpe ratios were three times better than the market's sharpe ratio. He said drawdowns in magic formula strategy could be significant over a few months or a year, but that the formula works long-term. He said the volatility of the MF is one of the reasons that hedge funds and other institutions won't follow formula and ruin its advantage. When asked specifically about the details of the earnings yield formula, he declined to address specifics, saying he didn't want to bore people. He did offer to one individual in book signing line that Greenblatt's team had their own formula for determining excess cash and how to treat other assets, and they applied those formulas to all companies. For other assets, like deferred taxes, he apparently took a ratio of the balances and applied it to all companies. To the question of why the website does not rank further among the top 25, 50 or 100 names, he said that there is not a statistically significant difference among the top 25 or top 100 stocks because they all are members of the top decile. He feared that if they ranked them any more within the top 25, people would just buy the top 8 and that would cause problems.

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