#10. Joel Greenblatt

The Magic Formula from a Legendary Investor and Hedge Fund Manager

Joel Greenblatt

Joel Greenblatt is a legendary investor, hedge fund manager, professor, and author who has been instrumental in the development and implementation of several investment strategies.

Born in New York City in 1957, Greenblatt graduated from the Wharton School of the University of Pennsylvania in 1979 with a degree in economics. After a brief stint in public accounting, he founded his own investment firm, Gotham Capital, in 1985. Gotham’s success was based on Greenblatt’s investment principles and strategies, which he developed over time through extensive research, analysis, and experimentation. In this article, we will explore Greenblatt’s investment philosophy, principles, strategies, and most famous deals, as well as some little-known trivia about the man.


Greenblatt’s Investment Philosophy and Principles

Greenblatt’s investment philosophy can be summarized as “buying good companies at bargain prices.” He believes that the key to successful investing is to identify undervalued companies with strong fundamentals and competitive advantages and to purchase them at prices below their intrinsic value. He also believes in the importance of diversification, risk management, and a long-term investment horizon. His investment strategies are based on several principles, including:

  1. Value Investing: Greenblatt is a value investor, which means he looks for companies that are trading below their intrinsic value. He uses several metrics to determine the intrinsic value of a company, including earnings, cash flow, and book value. He also uses relative valuation metrics, such as price-to-earnings ratio and price-to-book ratio, to compare a company’s value to its peers.

  2. Fundamental Analysis: Greenblatt is a firm believer in fundamental analysis, which involves analyzing a company’s financial statements, management, industry, and competitive position to determine its intrinsic value. He also uses quantitative analysis, such as screening for companies with a high return on capital and high earnings yield, to identify potential investments.

  3. Margin of Safety: Greenblatt believes in the importance of having a margin of safety, which means purchasing a stock at a price that is significantly below its intrinsic value to reduce the risk of loss. He also believes in diversification and investing in a portfolio of undervalued stocks to reduce the risk of individual stock losses.

  4. Contrarian Investing: Greenblatt is a contrarian investor, which means he looks for opportunities in companies that are out of favour with the market. He believes that the market is often inefficient and that it can misprice stocks based on short-term news and sentiment. He also believes in buying stocks that are unpopular and undervalued, as they have the potential to deliver significant returns when their true value is recognized by the market.


Greenblatt’s Investment Strategies

Greenblatt has developed several investment strategies over the years, which he has used to achieve outstanding returns for his clients. These strategies include:

  1. The Magic Formula: The Magic Formula is Greenblatt’s most famous investment strategy, which he described in his book “The Little Book That Beats the Market.” The Magic Formula involves screening for companies with high earnings yield and high return on capital, and purchasing a portfolio of these stocks. The Magic Formula has been shown to outperform the market over the long term, and Greenblatt has used it successfully to generate superior returns for his clients.

  2. Spin-Off Investing: Greenblatt has also been successful with spin-off investing, which involves buying shares of a company that has been spun off from its parent company. Spin-offs often trade at a discount to their intrinsic value because they are not well understood by the market. Greenblatt has used his fundamental analysis skills to identify undervalued spin-offs and has generated significant returns for his clients.

  3. Distressed Investing: Greenblatt has also been successful with distressed investing, which involves purchasing shares of companies that are experiencing financial difficulties. Distressed investing requires significant due diligence and analysis, as the companies may have high levels of debt, poor management, or other operational challenges. However, if the company can turn around its operations and improve its financial position, it can lead to significant returns for investors. Greenblatt has used his extensive research and analysis skills to identify distressed companies that have the potential for long-term growth and profitability.


Greenblatt’s Famous Deals

Greenblatt has been involved in several famous deals over the years, including the following:

  1. Investing in Marvel Comics: In the mid-1990s, Greenblatt invested in Marvel Comics when it was experiencing financial difficulties. Greenblatt saw the potential in Marvel’s strong brand and popular characters, and he helped the company turn around its operations. Marvel eventually became a major media conglomerate and was acquired by Disney in 2009 for $4 billion.

  2. Investing in Delta Airlines: In 2002, Greenblatt invested in Delta Airlines when it was facing bankruptcy. Greenblatt believed that Delta had a strong brand and competitive position in the airline industry, and he helped the company restructure its operations and finances. Delta eventually emerged from bankruptcy and has since become a major player in the airline industry.

  3. Investing in Apple: In 2010, Greenblatt invested in Apple when it was trading at a low price-to-earnings ratio. Greenblatt believed that Apple had strong fundamentals and competitive advantages, and he recognized the potential of the iPhone and other products. Apple has since become one of the most valuable companies in the world, and Greenblatt’s investment has generated significant returns for his clients.


Greenblatt’s Famous Quotes

Greenblatt is known for his pithy and insightful quotes about investing and the financial markets. Here are a few of his most famous quotes:

  1. “The stock market is a giant distraction to the business of investing.”

  2. “The investor’s chief problem, and even his worst enemy, is likely to be himself.”

  3. “Investing is the only business I know where when things go on sale, people run out of the store.”

  4. “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder, and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”


Little-Known Trivia About Joel Greenblatt

Here are a few little-known facts about Joel Greenblatt:

  1. Greenblatt is a professor at Columbia Business School, where he teaches a course on value investing.

  2. Greenblatt is also the founder of Formula Investing, an investment advisory firm that uses the Magic Formula to manage client portfolios.

  3. Greenblatt is a philanthropist and has donated millions of dollars to educational and charitable organizations.

  4. Greenblatt is also an author and has written several books on investing, including “The Little Book That Beats the Market” and “You Can Be a Stock Market Genius.”



Joel Greenblatt is a legendary investor and hedge fund manager who has achieved outstanding success through his investment principles, strategies, and insights. His focus on buying good companies at bargain prices, his emphasis on fundamental analysis and risk management, and his contrarian approach to investing have made him one of the most successful investors of our time. Through his famous deals, insightful quotes, and little-known trivia, we can learn valuable lessons about investing and the financial markets.

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