Joel Greenblatt: To Quote Animal House – Knowledge Is Good

Johnny HopkinsJoel GreenblattLeave a Comment

His his recent Felix Zulauf Webinar with Barry Ritholz, Joel Greenblatt was asked about hedge funds hiring untested bulls who haven’t seen downturns. Here’s an excerpt from the webinar:

There really is no advantage to hiring untested bulls I would say except in this environment over the short term it’s been a good thing to do. It’s always the case before things fall apart.

I would just say knowledge is good, to quote Animal House, and most investors now don’t understand that stocks are ownership shares of businesses that you have to value and buy at a discount.

The vast majority of these people, and by that I mean over 99%, have no idea how to value a business. I gave a talk at Google about four years ago now where I stated that even Warren Buffett thinks most people should just index and I said I agree with him. I also said Warren Buffett doesn’t index and neither do I how come?

So there’s different ways to skin a cat but for most people who don’t understand how to value businesses they have no business investing in individual stocks, especially if they’re going to be buying the ones on Reddit, if they understand it’s a game, and they don’t bet a lot, I have no problem with it. That’s not generally the people who get hurt.

The people who get hurt are the people who have some success not knowing what they’re doing and gamble more than they can afford. Ben Graham said they are investors and speculators, and these are clearly speculators and it’s not a good long-term strategy.

You can watch the entire discussion here (video cannot be viewed on this site, click on the link below to watch on YouTube):

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