Brendan McDermid/Reuters
- Joel Greenblatt warned many tech stocks are greatly overpriced.
- The value investor prefers fast-growing companies with stellar cash generation.
- Greenblatt’s firm scored a 114% gain in 2000 after the dot-com bubble burst.
- See more stories on Insider’s business page.
Joel Greenblatt trumpeted value investing, warned many technology stocks are hugely overpriced, and explained how he’s finding bargains earlier this month.
The veteran investor and Gotham Asset Management co-chief joined Richard Pzena, head of Pzena Investment Management, to deliver a “value investing masterclass” to their clients. Gotham provided an exclusive transcript of the discussion to Insider.
Here are Greenblatt’s seven best quotes, lightly edited and condensed for clarity:
1. “Value investing is valuing a business like you’re a private-equity firm buying the whole business.”
2. “If my investment strategy was buying all the houses that went up the most in the last three to six months, you would say, ‘You’re kind of an idiot.’ With stocks, people lose their bearings a bit, because they bounce around and you can calculate a lot of statistics and other things. But they are actually ownership shares of businesses that you value and try to buy at a discount.”
3. “Things get pretty stupid at very low interest rates.”
4. “If someone wants to pay for rides to Mars at an astronomical valuation and that strategy beats us, that is out of my comfort, or knowledge zone. If we can get a very nice risk-adjusted return using a very high risk-free rate, what people do with some other crazy stocks, that doesn’t matter to me.”
5. “I don’t think it’s a good idea to go dumpster-diving in the money-losers for the few winners; that has typically been the wrong way to go. I would rather look in a pile of companies that are gushing cash. We are able to put together a portfolio with almost double the returns of the S&P 500, returns on capital in the business of over 60%, with big sales growth and all these other things. The market is throwing us these great pitches.”
6. “359 businesses with market caps over $1 billion lost money in 2019. They are all priced as if they will be the next Amazon, Google, or Microsoft, but the vast majority will not be. That is where I think the froth is.”
7. “In 1998, during the internet bubble, we lost 5% while the market was up 26%. In 1999, the market was up another 21% and we were down 5% again. I was teaching at Columbia at that time. The kids were more or less chucking erasers at me saying, ‘you don’t get it.’ In 2000, the market was down 9% and we were up 114%. It wasn’t that we were idiots in 1998 and 1999, and all of a sudden became geniuses in 2000. We finally got paid for all the work we did laying the groundwork with these great opportunities. “
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