Joel Greenblatt interview (10/19/11)

[valuebull]

Why is investing in hedge funds seen as a way to get “more bang for your buck?”  Joel Greenblatt, founder and value investor at Gotham Capital in New York, sits down with WSJ’s Steve Eder  to discuss. He also outlines some sectors and stocks worth a look for individual investors. 

 

The video is about 9 minutes long.

 

http://blogs.wsj.com/deals/2011/10/19/joel-greenblatt-on-the-resilience-of-hedge-funds/?mod=WSJBlog

 

[dcollon]

He always makes things seem so simple, which I enjoy.

 

[Baoxiaodao]

I read the little book about magic formula like 5 times and I have nothing but great respect to this thoughtful and yet humble man. Now all my stocks were chosen based on those metrics and it helped with the performance greatly.

 

Thanks for posting.

[bonechip1]

If you enjoy Greenblatt's books and interviews, you will probably enjoy the following blog,  in particular the Lecture posts/notes:

http://csinvesting.wordpress.com/

[BargainValueHunter]

Not a fan of how things went down between him and Dr. Michael Burry but his insight is always interesting.

[Baoxiaodao]

Not a fan of how things went down between him and Dr. Michael Burry but his insight is always interesting.

 

I've learned over the years that you cannot based your judgement on one-sided stories, even it was written by Michael Lewis. So many opinions I formed in my 20s turned out to be too radical or pessimistic. My policy is like this, unless I am 100% sure about something, I declined to take side. It has saved me a lot of miseries.

[BargainValueHunter]

Not a fan of how things went down between him and Dr. Michael Burry but his insight is always interesting.

 

I've learned over the years that you cannot based your judgement on one-sided stories, even it was written by Michael Lewis. So many opinions I formed in my 20s turned out to be too radical or pessimistic. My policy is like this, unless I am 100% sure about something, I declined to take side. It has saved me a lot of miseries.

 

When Greenblatt decides to tell his side of the story, I'll be there to listen.

[oddballstocks]

If I recall Greenblatt discussed his side at VIC this past week.  Here is what he said:

 

"Question about Michael Burry. (Background: In “The Big Short”, writer Michael Lewis made Greenblatt out for a villain for taking money from Burry even as Burry was right.) Greenblatt was a little annoyed by the question: “Michael Lewis has never let the facts get in a way of a good story. What they got wrong in the book is Burry wanted to side pocket both mortgage and corporate CDS... we did not want him to side pocket the liquid corporate CDSs … only reason we took money from him was we were getting redemptions.”"

 

From: http://www.marketfolly.com/2011/10/joel-greenblatt-big-secret-for-value.html

 

So seems like Greenblatt needed to raise some cash and Burry was the only way possible. 

[AZ_Value]

If I recall Greenblatt discussed his side at VIC this past week.  Here is what he said:

 

"Question about Michael Burry. (Background: In “The Big Short”, writer Michael Lewis made Greenblatt out for a villain for taking money from Burry even as Burry was right.) Greenblatt was a little annoyed by the question: “Michael Lewis has never let the facts get in a way of a good story. What they got wrong in the book is Burry wanted to side pocket both mortgage and corporate CDS... we did not want him to side pocket the liquid corporate CDSs … only reason we took money from him was we were getting redemptions.”"

 

From: http://www.marketfolly.com/2011/10/joel-greenblatt-big-secret-for-value.html

 

So seems like Greenblatt needed to raise some cash and Burry was the only way possible.

 

Thanks a lot for this. I've also been wondering for a while now if there was anything with Greenblatt going on record to explain the Mike Burry episode, at least his side of the story. Because everything that was out there sure made it seem like he was pulling money from a guy that had a stupendous record over 6 years and that was also providing a very sound argument/analysis for his CDS positions.

[Kraven]

I'm a big Burry fan, but always thought Greenblatt was painted too much as the villain in trying to get money out.  Don't forget too that he backed Burry when no one else was there at the beginning.  But remember that he backed him as a value equity fund.  Performance was tremendous, but then all of a sudden Burry is out there investing large sums in these newfangled CDS.  I am not sure it would have been unreasonable for Greenblatt to say hey, Mike, we love you as a deep value guy in stocks, but I don't know about this derivatives thing.  Of course it turned out spectacularly well, but I don't know that his 5 years or so of performance necessarily entitled him to a blank check without parameters.  He was managing other people's money.  Obviously the documentation allowed him to do so, but clearly the intent wasn't that he would be doing anything other than securities. 

[bargainman]

... is Burry wanted to side pocket both mortgage and corporate CDS... we did not want him to side pocket the liquid corporate CDSs … only reason we took money from him was we were getting redemptions.”"

 

 

 

Sorry if I'm being dense but what does he mean by 'side pocket'? 

[AZ_Value]

Bargainman,

 

See quoted from "The Big Short":

 

 

“One night, as Burry was complaining to his wife about the complete absence of long-term perspective in the financial markets, a thought struck him: His agreement with his investors gave him the right to keep their money if he had invested it “in securities for which there is no public market or that are not freely tradable.” It was left to the manager to decide if there was a public market for a security. If Michael Burry thought there wasn’t—for instance, if he thought a market was temporarily not functioning or somehow fraudulent—he was permitted to “side-pocket” an investment. That is, he could tell his investors that they couldn’t have their money back until the bet he’d made with it had run its natural course. And so he did what seemed to him the only proper and logical thing to do: He side-pocketed his credit default swaps. The long list of investors eager to get their money back from him—a list that included his founding backer, Gotham Capital—received the news from him in a terse letter: He was locking up between 50 and 55 percent of their money.”

 

Lewis, Michael (2010-05-12). The Big Short: Inside the Doomsday Machine (p. 189). W. W. Norton & Company. Kindle Edition.

 

[AZ_Value]

First let me say that I mostly agree with you guys and I like Greenblatt and his books are worth 10 times what you'll pay for them. But this board is usually fun when someone plays devil's advocate :), so I will

 

I agree that it's their money and Burry is just investing it for them. And it's their right to get money out if they wish.

But somehow I think if his name wasn't Grennblatt some of us would be calling him dumb money for pulling money out right before a once in a lifetime payday.

 

Of course it turned out spectacularly well, but I don't know that his 5 years or so of performance necessarily entitled him to a blank check without parameters

 

So after five years of outstanding returns is when you decide not to trust the analysis of a guy you trusted enough to give him $100M to invest based solely on his blog??

 

Some on this board have been defending managers like Berkowitz saying that those who have been pulling money out now are dumb for doing so  without listening to his thesis about why picks like BAC are good picks (even though it's their right) and at the very least look at his record and trust that he hasn't suddenly gone crazy.

And it's not like Burry was hiding what he was doing, he had told his investors, why he was placing the bets, how he was placing them and even when they were going to pay out and he was right across the line. So if Greenblatt is himself an outstanding investor, how come he couldn't see what Burry was seeing (even as late as early 2007 I think) when he was providing them with data with foreclosures getting out of control.

On this board we idolize a dude who back when he ran a partnership wouldn't even tell  his partners where their money was sometimes until after he had divested from the investment; so all they had going for them was the knowledge that he was an outstanding and honest analyst who was compounding their savings at exceptional rates (notwithstanding the fact that rules and requirements were different back then)

Or another one who went through "7 lean years" and those that stuck with him made a lot of money.

 

I guess all I'm saying is that I was just a bit disappointed because one would expect from someone as respected as Greenblatt to be one of those that look at facts and analysis/evidence rather than want to get out due to a short term decline especially when you're the very person who launched Mike Burry and recognized him as an ace. If he is an outstanding value investor, I don't buy the argument of we hired you to buy stocks and nothing but stocks!! People that are Mike Burry good follow value wherever it is.

 

Maybe the redemptions he was facing was the issue, I'll give him that as I have no clue, but what I would like to hear from Greenblatt is him explaining exactly why even with all the evidence Burry was giving them he still wanted to get out of that trade, it has to come down to the fact he either didn't think it was a good one or at the very least he had doubts.

But then again, it is not my place to comment as it wasn't my $100M that was on the line so I maybe would have been the first to want out who knows :)

 

 

 

[SFValue]

he mentioned he was getting redemptions from investors so he was redeeming all their funds pro-rata. Sounds reasonable to me.