Here’s an excerpt from a great interview between Joel Greenblatt and Howard Marks in which Greenblatt illustrates why it will always be possible to beat the market, saying:
This is what I tell my students and most of my students are around 27ish or something like that. I tell them all let’s go back to when you were roughly 10 years old, where you might start noticing some of this thing. Let’s go look at the most followed market in the world and that would be the United States. And let’s go look at the most followed stocks in the most followed world, in the most followed market in the world, and that would be the S&P500 stocks to a large extent.
Let’s take a look at what happened since you were 10 years old. Take a look at the S&P500 from 1996 to 2000 it doubled. From 2000 to 2002 it halved. From 2002 to 2007 it doubled. From 2007 to 2009 it halved. From 2009 till today it’s basically tripled.
That’s my way of saying people are still crazy and that’s a really unfair thing to say because this S&P500 is an average of 500 stocks. There’s huge dispersion going on within that average between stocks that are in favor that people love emotionally and stocks that people hate. It’s really much worse than what I just described. There’s huge dichotomy between things people like and people don’t. Things that are in favor, out of favor. Within that is all this noise is going on. Within that average is smoothing things.
So if you believe what Ben Graham said is… You know here’s fair value and here’s what the market prices are. It’s like a wave around fair value. And if you have a disciplined way to value companies and buy more than your fair share when they’re down here and sell some maybe if you’re shorting, and you’re very disciplined…
Listen to what I told my students since they were 10 years old. It’s pretty clear that people are still crazy and there’s opportunity out there.
You can watch the entire interview here:
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