Joel Greenblatt’s Value Returns and Metrics

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During their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed Joel Greenblatt’s Value Returns and Metrics. Here’s an excerpt from the episode:

Tobias: Greenblatt publishes on his Gotham website, the two-year look ahead returns for his portfolios, which is an earnings yield built on Ebit/EV, which I like, because I like that metric. It’s now trading below the 50th percentile. It’s high 40s. 48, 47, something like that, which means that we’re in the more expensive part of the half, like, still pretty much at the midway point. I have a little bit of trouble getting my head around that, given that for years and years, it’s been the other way around.

Jake: How does it feel for you when you look at your screens and you compare it to historical screens? What’s the general cheapness today of what you do–?

Tobias: I don’t track just the yield, although I probably should track that. I’m just less interested in the yield by itself as a number, because I look at rate of reinvestment and what the historical return, the amount that is being reinvested and the historical return on that reinvestment and the amount that’s available. Those numbers are definitely down as you’d expect. October last year was pretty good, and now it’s a few percent lower. I don’t want to make these sound like these are forecasts, because they’re not.

Jake: Yeah… you’re going to put up this number.

Bill: No one in the investment industry would ever say anything like someone would compound 40% from here.


Tobias: Well, I thought the number was pushing 20 in October, and I would say it’s closer to 13.5, 14 now. It’s just the one that I look at. So, it’s pretty– [crosstalk]

Bill: Where do you see–? [crosstalk]

Jake: Thos are the prices running up either. [laughs]

Tobias: Well, they have run up quite a lot from October. Like, from the October– [crosstalk]

Jake: Oh, okay, fair enough.

Tobias: Yeah, I agree. I look at the Greenblatt stuff and I’m like, “How is that number coming in so much?” Because it’s not like there’s that much performance there.

Bill: He’s long a bunch of cyclicals.

Jake: [crosstalk] talked about it at one point. It was way up there.

Bill: Yeah, but he was long a bunch of cyclicals and the earnings rolled over and the price probably went up a little.

Tobias: If you think about it, the criticism at that point when we were looking at it was, well, it’s heavy energy.

Bill: yeah.

Tobias: I don’t know that energies come in that much. I would say energy- [crosstalk]

Bill: Oh, for sure, dude.

Tobias: [crosstalk] -through that period of time.

Bill: No, I think you’re coming. Well, I say, for sure. I don’t know what I’m talking about. If I recall correctly, last quarter energy earnings were supposed to be down 47% year over year.

Tobias: Okay. Year over year, really?

Bill: Yeah. They freaking printed money, what, two years ago? Well, not– What? 12–

Jake: 2022.

Bill: The calendar year of 2022, they destroyed it. And they may again, but I bet if they do again, I bet you’ll see the multiple [unintelligible [00:24:58] a little bit. Yeah. I’m just looking right now. Top ten GBLU. Sorry Jake.

Jake: Well, I was just going to say, Chevron’s down like 7% year to date. Exxon is at roughly flat. Oxy is roughly flat.

Tobias: Is that earnings or stock price?

Jake: This is just stock price.

Tobias: Yeah.

Bill: As top ten GBLU, you got Cal-Maine. That’s an egg producer. Eggs went through the roof. Mueller Industries, Imperial Oil, Marathon Petroleum, TEGNA, Builders FirstSource, Valero CF and Philips 66, it’s a lot of cyclicals.

Tobias: What’s GBLU is that? Is that the Gotham–?

Bill: Yeah, I think it’s his thousand–

Tobias: Okay.

Bill: Yeah, the thousand value.

Tobias: Because he’s got a few funds in there that are like half SPY equivalent half. It’s not that.

Jake: Right. They’re replaying of the SPY basically, like, if you need to hug an index but you want a little bit of a value tilt, that does.

Tobias: Yeah, which seems to me it solves tracking error for him more than it solves any real investment problem for anybody out there.

Bill: Yeah.

Bill: I actually think solving tracking error. It takes a lot to have substantially different returns from the people around you. That is not the easiest thing. Even if you think you can– [crosstalk]

Tobias: [crosstalk]

Bill: Yeah, same-same. Same-same. But yeah, no, I don’t know how many people are built for too much tracking error.

Jake: Amen.

Tobias: None of us are really– We just hope reigns supreme.

Bill: It’s like, when you’re signing up for an investment product, you’re like, “Yeah, I’m good with tracking error.” And then you live through it for three or four years and you’re like, “Man, that sucks.”

Tobias: It’s a long.

Bill: Yeah.

Tobias: Yeah.

Bill: I think that’s wild.

Jake: McConaughey meme from True Detective or– [laughs]

Tobias: The start and the finish. Yeah, that’s right.


Bill: Yeah.

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