In his book – You Can Be A Stock Market Genius, Joel Greenblatt discusses his cautious investment strategy, emphasizing skepticism toward high-growth, high-multiple stocks. Despite initial excitement about new concepts and products, he often avoids investing due to their typically high price/earnings ratios, which can be unrealistic or infinite for new businesses.
Greenblatt acknowledges that this approach might cause him to miss out on future giants like Microsoft or Wal-Mart, but he accepts this trade-off. He prefers to avoid potential losses, believing that not losing money leads to generally good investment outcomes.
This conservative strategy reflects his belief in prioritizing stability over speculative gains.
Here’s an excerpt from the book:
Ordinarily, with this type of opportunity, I don’t care what I think. What a great concept! What a fantastic new product! This could be a home run! These are thoughts I have from time to time, but I do my darnedest to ignore them.
Whenever you can buy into one of these great new concepts or products through the stock market, there’s usually a price tag that goes along with it. The stock price could be twenty, thirty, or fifty times earnings.
In many cases, the price/earnings ratio could be infinite—in other words, the business is so new, there are no earnings; in the case of “concepts,” there may be no sales, either!
My negative attitude toward investing in fast-growing (or potentially fast-growing), high-multiple stocks will probably keep me from investing in the next Microsoft or Wal-Mart.
But I figure, since I’m no wizard at forecasting the next big retail or technological trend, I’ll probably miss out on a pile of losers, too.
For me, this is a fair trade-off because (as I’ve pointed out before) if you don’t lose, most of the other alternatives are good.”
You can find a copy of the book here:
You Can Be A Stock Market Genius – Joel Greenblatt
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
