You Can Be a Stock Market Genius - Joel Greenblatt

[matjone]

[amazonsearch]You Can Be a Stock Market Genius[/amazonsearch]

 

Picked this up at the library this week and realized it did not have a thread on here yet.  Some of the strategies seemed to make sense, but I wonder if the price/value gaps have narrowed on these types of situations now that he has revealed all his secrets. 

 

Some of the strategies seemed to me to be speculating rather than investing.  In one part he says he bought call options that expired two weeks after a spinoff was scheduled to happen, on the expectation that the price would jump in that time frame.

 

I'd appreciate to hear what others thought of it, and whether anyone has tried any ofthese techniques.

[alwaysinvert]

I actually started rereading it again today for the umpteenth time. Can't remember the 2-week call option thing, though, so will have to get back on that.

 

It's no daring guess that the competition has increased in spinoff situations, not as much because of Greenblatt's book as because of the rise of hedge funds. More money with fewer restrictions inhibits the institutional aspect of his argument for spinoff investing, which is the most important one. More of it may still hold true for spinoffs in smaller firms though, even if index fund selling is a non-issue in those cases.

 

I have bought two spinoffs in the last two years. On one I made 50% in 6 months and on the other, which after almost a year still is in my portfolio, I am about break-even. I was a bit too eager to get in and missed the best bargain that the institutional selloff (micro cap company, spun off from a significantly less 'boring' parent) created.

 

One of my other current holdings actually announced that they where considering spinning off a division which has triggered me into considering increasing my position. Maybe it's a bit speculative, but I'm pretty confident that the market will value them higher separately than it's doing now - and to me the stock is clearly undervalued. A more confined timeline for the possible unlocking of value can hardly be a negative. And spinoffs are, if nothing else, in many cases a sign that management is shareholder friendly.

 

The stock trades at a p/e of 8 with a capital intensive but very high-growth business that has only just turned profitable for them (server hosting, managed services etc) and the other as an ISP and telecom provider for SME, which is a huge cash-cow but low to now growth, although there has been considerable margin expansion in the last few years. The telecom side is about 3.5x bigger than the hosting business at this moment.

 

My view is that the telecom business is probably worth about 10-12 times earnings and the hosting business could be possibly be worth, considering they have made signficant investments in new servers which are to be opened very soon,  a lot more than that. It may experience both growth and heavy margin expansion due to only now operating the current locations without considerable vacancies and still having depressed earnings in the reporting. Oh, and despite the company plowing some money into the server business, the dividend yield sits at 6.2% this year (net debt of a litte above half of 2011 earnings). 

 

I veered off quite a bit. Anyhow, this book is one of my favourites and probably the one I read most times, partly because it's such an easy read.

[Liberty]

Even though I haven't done spinoff arbitrage yet, and might not do any for a long time, I liked the book. Contains lots of good mental models to help you look at things differently.

[merkhet]

 

I actually started rereading it again today for the umpteenth time. Can't remember the 2-week call option thing, though, so will have to get back on that.

 

 

The OP is referring to the Marriott situation starting on page 233.

 

I haven't gotten involved in too many spin-off situations, but my sense is that while the price/value discrepancy has narrowed a bit since more people are looking at these things, the structural issues that create the discrepancy in the first place still exist and can provide good bargains.

[Chris DeMuth Jr]

This is probably one of the most applicable investing books that I've read so far -- http://seekingalpha.com/article/1168971-you-can-be-a-stock-market-genius-uncover-the-secret-hiding-places-of-stock-market-profits

[John Hjorth]

I ordered this book today. As always, I'm looking forward to the read, based on comments here on CoBF. [scott mentioned it recently to me in a book discussion topic.] Pure FOGDOUB. [<- Fear Of Going Down On Unread Books!]

[cubsfan]

It's a fabulous book.

[Liberty]

It's a fabulous book.

 

It's as good as the title is cringe-worthy!

[Jurgis]

It's a great book if you're writser. But then you don't need the book.  8)

[John Hjorth]

Thanks gents!,

 

At some - by now - unspecified time in future, I hope to understand your posts!

[Lakesider]

Can anyone suggest any other investing books as enjoyable to read as Greenblatt's?

[Liberty]

Can anyone suggest any other investing books as enjoyable to read as Greenblatt's?

 

More anecdotes/history than 'how to', but I remember 'More Money Than God' being pretty enjoyable. Same with Michael Lewis 'The Big Short'.

[sleepydragon]

Can anyone suggest any other investing books as enjoyable to read as Greenblatt's?

 

I am reading “a piece of action”

[Saluki]

Klarman's Margin of Safety is a really well-written book.  The price is outrageous, but you can borrow it from the library.

 

Running Money by Andy Kessler

FIASCO by Frank Portnoy

Boomerang by Michael Lewis

 

are all very entertaining