In his book – You Can Be A Stock Market Genius, Joel Greenblatt explains that becoming a skilled investor requires time, practice, and good judgment. He advises beginners to start by investing a small portion of their assets in special corporate situations and increase their commitment as they gain confidence and knowledge.
Greenblatt warns against common pitfalls, such as over-concentrating investments in one industry, relying heavily on margin debt, or lacking portfolio diversity.
He highlights the importance of common sense and thoughtful decision-making in investment strategies. For those unwilling to invest the necessary time and effort, Greenblatt suggests that managing one’s own portfolio may not be the right approach.
Here’s an excerpt from the book:
While it’s true that you can be a stock market genius, there’s no guarantee that you will be. Like the acquisition of any new skill, becoming a good investor can take both time and practice.
By leading you to investment areas where the odds are stacked in your favor, I’ve tried to give you a big head start. But you still have to use good judgment.
If you’re not already an experienced stock-market investor, you might start off investing only a small portion of your assets in these special corporate situations. As your experience and knowledge expand, you may feel confident enough to commit a larger share of your resources.
There are other ways you can avoid playing the role of the “dead partner.” Frankly, I’m not going to be around to avenge your death in Act III, so you’re going to have to learn how to look out for yourself.
One way to do this is to pay attention to the make-up of your portfolio. For instance, while a portfolio of five or six different spinoffs probably makes sense, a portfolio made up solely of five or six different LEAPS probably doesn’t.
Similarly, unless you’re an expert in the field, concentrating all or most of your investments in any one industry is generally unwise. Further, taking on lots of margin debt can force you to sell out your positions at just the wrong time; only investors with substantial experience should borrow more than modest amounts against their investment portfolio.
But all of this is just common sense. If you’re short on common sense when it comes to investments—and you aren’t willing to put in the time to get some—maybe managing your own portfolio isn’t for you.
You can find a number of other articles and interviews by Joel Greenblatt here:
Joel Greenblatt Books, Articles & Interviews
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