Joel Greenblatt: How Investors Suspend Common Sense

In his recent interview with TWIS, Joel Greenblatt discusses how investors suspend common sense. Here’s an excerpt from the interview:

Greenblatt: You talked about momentum. If you just take a concept like momentum, which has worked for the last 30/40 years on average, not just the United States but across the globe, with one or two exceptions, but if I said to you please give me money, I’m gonna go out invest in real estate, in homes, and here’s my strategy.

I’m just gonna buy all the homes that are up the most in the last year okay. I would hope you’d kick me out of your office and say I’m not giving you money, that makes no sense to me.

Just because stocks bounce around every day and maybe they’re a little bit more removed from a tangible house, people all of a sudden check their common sense at the door and say, oh well they must know, there’s numbers involved and it’s momentum and everything else.

But if I put it into something very concrete and say hey my strategy, just buy all the houses that were up the most, most people would probably say I’m not comfortable with that.

You can listen to the entire discussion here: