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.
Yesterday, GuruFocus posted the answers to the questions to which Greenblatt deigned to respond. Greenblatt ignored my first question above, about why he added a minimum market cap to his Magic Formula screener, and offered this semi-answer to my second question,
A new updated study [of the Magic Formula's recent returns] should be published at FormulaInvesting.com soon.
Another GuruFocus poster asked an interesting question, about the merits of using a long-only equity strategy such as the Magic Formula if we are in a secular bear market. Here was Greenblatt's response:
A new updated study should be posted on FormulaInvesting.com in the near future and the results appear to be quite good relative to a flattish market over the last 10 years or so. Also, since the market has not performed well over the last decade or so, that may turn out to be a good time to invest, not a bad time.
It's worth remembering, when reading that answer, that Greenblatt started working on Wall Street "at the end of 1981" (as he noted in response to another question. So he became a professional investor right before the beginning of an unprecedented 18-year secular bull market. It's not surprising, given that experience, that Greenblatt would recommend a long-only equity strategy to the masses, but I wonder whether that makes sense at this point, since, as Vitaliy Katsenelson has pointed out, secular bear markets (or range-bound markets, as he calls them) tend to last about as long as the secular bull markets that preceded them. That means we could be in for another decade or so of more of the same. Perhaps a more opportunistic approach would be better.
Posts
