Why Good Stock Valuation Still Wins – Joel Greenblatt Explains

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you know once a year in my class at

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Colombia I uh at least for the last five

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six years somebody raises their hand and

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asked a question that goes something

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along the lines uh something like this

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hey Joel congratulations you've been

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doing this for 35 years uh and you've

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had a nice record but now there are more

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computers there's more data there's more

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ability to crunch numbers and uh kind of

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isn't the party over for us isn't it

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just a more hedge funds there's there's

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just a lot more competition isn't the

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party over for us so my students are

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generally secondyear MBAs i'd say

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average age 27 or so uh so I just answer

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it this way i tell them let's go back to

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when you learn how to read uh let's take

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a look at the most followed market in

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the world that would be the United

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States let's take a look at the most

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followed stocks within the most followed

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market in the world those would be the

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S&P 500 stocks let's take a look at

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what's happened since you learned how to

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read so I tell them from 1997

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uh when they were nine or 10 uh to 2000

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the S&P 500 doubled from 2000 to 2002 it

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have hald from 2002 to 2007 it doubled

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from 2007 to 2009 it have hald and from

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2009 to today it's roughly tripled which

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is my way of uh telling them that people

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are still crazy that was just the last

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17 years uh and a way understating the

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case uh because the S&P 500's an average

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of 500 stocks if you lift up the covers

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and look underneath what's going on

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there's huge dispersion of those 500

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stocks between those at any particular

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time that are in favor and those that

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are out of favor and so there's a wild

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ride going underneath the covers if you

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look under the covers there's a wild

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ride of those 500 stocks at any

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particular time and that doubling and

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having doubling and having with the

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average of 500 stocks really smoothing

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the ride

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so there should be uh an

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opportunity and uh if you understand

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what stocks are and I uh guarantee my

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students first day of class uh I make a

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guarantee every year they walk in and I

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guarantee them this if they do good

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valuation work I uh of a company I

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guarantee them the market will agree

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with them i just never tell them when

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could be a couple weeks could be two or

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three years but if they do good

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valuation work the market will agree

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with them stocks are not pieces of paper

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that uh bounce up and down and you put

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uh complicated ratios on like sharp

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ratios or certino ratios stocks are

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ownership shares of businesses that you

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are valuing and if so inclined tried to

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buy at a discount