YOU CAN BE A STOCK MARKET GENIUS (BY JOEL GREENBLATT)

Summary

In this video, The Swedish Investor shares key takeaways from Joel Greenblatt’s book *You Can Be a Stock Market Genius*, which focuses on finding lucrative investment opportunities in special corporate situations. Key strategies discussed include investing in spinoffs, merger securities, and restructurings. Greenblatt’s approach, which led to exceptional returns in the 1980s and 1990s, highlights the importance of doing thorough research to identify opportunities that others overlook. The video emphasizes investing with management, picking the right spots, and focusing on special events to maximize returns. It provides insightful advice for those looking to outsmart the market.

Takeaways

• 😀 Takeaway 1: Spinoffs are a lucrative investment opportunity, often outperforming the market by 10% annually during the first three years as independent companies.
• 😀 Takeaway 2: Institutions often avoid spun-off companies due to their small size, creating an opportunity for individual investors to capitalize on initial selling pressure.
• 😀 Takeaway 3: Merger securities can be a profitable investment as they are often sold by shareholders who don't want to deal with bonds, creating an opportunity for savvy investors.
• 😀 Takeaway 4: Risk arbitrage is a dangerous investment strategy, as it exposes investors to significant downside if a merger or acquisition fails to go through.
• 😀 Takeaway 5: Restructurings present opportunities when companies sell off or shut down underperforming divisions, which can lead to improved profitability and stock price appreciation.
• 😀 Takeaway 6: Management teams that prioritize shareholder interests, even at the cost of their own prestige, are often the best leaders to invest in during restructurings.
• 😀 Takeaway 7: To succeed in special corporate situations, always do your own research and avoid trusting others blindly, especially in complex situations like spinoffs or mergers.
• 😀 Takeaway 8: Invest alongside insiders who have skin in the game, particularly in spinoffs, where the new management of the standalone company may be more motivated to succeed.
• 😀 Takeaway 9: Concentrate your investments on a select number of high-potential opportunities, as diversifying too much in special situations may not provide much additional risk protection.
• 😀 Takeaway 10: If you're not willing to put in the effort to identify and analyze special situations, consider a more passive investment strategy like Joel Greenblatt's approach in 'The Little Book That Beats the Market.'

Q & A

What is the main point of the plumber story shared in the script?

The plumber story emphasizes the importance of knowing where to take action. In investing, it's not just about making moves but understanding where and how to apply strategies effectively, just like the plumber who charges more for knowing where to bang on the pipes.

Who is Joel Greenblatt, and why is he significant in the context of the script?

Joel Greenblatt is the founder of Gotham Asset Management and is known for achieving exceptional returns in the stock market, particularly through his focus on special corporate situations. His investment strategies, which are discussed in the script, have led to annualized returns of 50% from 1985 to 1994.

What are spinoffs, and why are they considered a lucrative investment opportunity?

Spinoffs occur when a company separates a division to make it an independent entity. They are considered lucrative because studies have shown that spinoffs outperform the market in the first few years, as they tend to be overlooked by institutions and analysts, creating an opportunity for private investors to capitalize on.

Why do institutions often avoid investing in spinoffs?

Institutions avoid spinoffs because the spun-off companies are typically too small for their portfolios, and they may not have purchased the stock for the spinoff in the first place. This creates initial selling pressure on the stock that doesn't reflect the underlying business value.

What is the potential advantage for investors when it comes to merger securities?

Merger securities, which can include bonds or other financial instruments used during mergers, are often sold by other investors due to their lack of interest. This creates an opportunity for savvy investors to buy them at a lower price and potentially profit as these securities are usually undervalued in the market.

What is risk arbitrage, and why is it considered a risky investment strategy?

Risk arbitrage, or merger arbitrage, involves buying a stock in anticipation of a merger or acquisition. However, the risks are significant, as the deal might not go through, leading to a large downside. Moreover, if the deal takes longer to complete, the returns can be minimal, making this a poor use of capital in many cases.

What makes restructurings a potential investment opportunity?

Restructurings, particularly when a company shuts down or sells a poorly performing division, can present investment opportunities. These moves often lead to increased earnings per share and greater focus on profitable parts of the business, which can result in stock price growth.

What are the key strategies for investing in special corporate situations?

Key strategies include doing thorough research, investing alongside company insiders who have 'skin in the game', picking specific opportunities carefully, and concentrating investments in a small number of promising situations to maximize returns.

Why is it important to avoid relying on other people when investing in special situations?

The script emphasizes doing your own research and homework because the success of investing in special situations often depends on unique insights that others may overlook. Relying on others can result in missed opportunities or poor investment decisions.

How does Greenblatt's approach in 'The Little Book That Beats The Market' compare to the strategies discussed in this video?

Greenblatt's other book, 'The Little Book That Beats The Market', offers a more passive approach to investing, focusing on using minimal time for significant returns. This contrasts with the active, research-intensive approach discussed in the video, which targets specific corporate events and opportunities.