Wednesday, June 10, 2009

My Questions for Joel Greenblatt

GuruFocus announced it will be hosting a question and answer session with Joel Greenblatt and solicited questions from readers. Below are the questions I submitted for Greenblatt. For others' questions, click the link above.

Why did you set the minimum market cap to $50 million on your new Magic Formula screener, when users used to be able to enter a market cap as low as $1 million on your original screener? Did you find that the Magic Formula does not work as well for stocks with market caps below $50 million? If so, would you mind reimbursing me for the money I've lost buying Magic Formula stocks with market caps below $50 million1?

In your book The Little Book that Beats the Market, you alluded to the dramatic under-performance of a certain investor's2 strategies in the few years after he published a book on those strategies. Do you think it's a coincidence that the few years following the publishing of your book have been difficult times for adherents of the Magic Formula as well? Is it possible that, by the time someone decides to write a book on an investment strategy, that strategy is typically due for a period of under-performance?

1A joke, Prof. Greenblatt. I find that having a sense of humor helps in handling market losses.

2You didn't mention this investor by name, but I believe you were alluding to James O'Shaughnessy.

The photo above of Joel Greenblatt is from GuruFocus.


The real stockdoc said...

Nice questions, I could have answered them had you asked me!
Don't treat me like a dentist, treat me like a millionaire investor, please!

DaveinHackensack said...

If that's you, Billy Tickets, your obsession with the dentist is reaching Moby Dick proportions. Put down the harpoon. Or, failing that, take it to the comments thread of the post on the topic of the Stockdoxc-BillyTickets-Daniel Wahl dramas: Dramatis Personae. TIA. And if you're not Billy Tickets, I apologize. This comment comes on the heels of the most recent in a series of e-mails from Billy on Paul.

Anonymous said...

I wonder if the lower market cap stocks are being eliminated because of front running? Not actually "front running" per se but gaming the system a bit since roa and earnings yiedl might not show up as fast as a companies operation press release.

JK said...


Regarding the emails, I was beginning to think I was the only one!

I don't bother responding to them anymore. It is incredibly pathetic. Calling an 800 number to complain about an internet poster? (did you get that jewel? lol)insane!

DaveinHackensack said...


I'm not sure how much space there is to game the system like that, because I think the MF site updates the numbers as soon as the new quarterly data comes in. I wonder if the issue with the nano-cap Magic Formula stocks was that their ttm numbers were more likely to be distorted by windfall quarters. But then again, that would have been apparent from the back-testing Greenblatt did from the book. I really don't know why he changed the screener. Maybe it's because of his Formula Trading venture, i.e., it's not cost effective for that service to buy the smallest stocks.


Yeah, I got that e-mail with the 800 number. I stopped responding a few e-mails ago.