During this interview with Howard Marks, Joel Greenblatt recounts an investment that inspired the creation of the Value Investors Club. During a period when he managed only personal capital, he identified a company selling at half its cash value with a strong business attached.
The investment was particularly compelling due to its low risk and potential upside, aligning with his strategy of prioritizing safety over maximum profit.
Its complex capital structure deterred others, but Greenblatt saw the opportunity, investing heavily with confidence. This experience highlighted the value of uncovering overlooked opportunities, emphasizing the importance of conviction and careful analysis in value investing.
Here’s an excerpt from the interview:
Greenblatt: Oh well, I can think of one example that was actually the inspiration for the Value Investors Club.
We were just running our own capital. We ran outside capital for ten years and then returned all our outside capital. I didn’t take outside capital again until 2009 to run directly. Anyway, this was during a period when we weren’t running outside capital, and so we were just looking for good ideas for ourselves.
One of the best investments I had ever seen came to our attention. The reason it was so great was that it was a company selling at half its cash value with a great business attached. Usually, when I size positions, my largest positions are not the ones I think I’m going to make the most money from.
My largest positions are the ones I don’t think I’m going to lose money in. This way, I can buy a lot of that without taking much risk. And if there’s some optionality, meaning it could go up, that’s even better.
This particular investment had everything. I was buying at half its cash value with a good business attached. It had a complicated capital structure that people couldn’t figure out because it was relatively new and unfamiliar. But if you did figure it out, that’s what you were buying—something at half its cash value with a good business.
Obviously, we bought a lot of that.
You can watch the entire interview here:
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:
