Joel Greenblatt

Joel Greenblatt: Here’s Why A Concentrated Portfolio Makes Sense

Here’s a great excerpt from Joel Greenblatt’s interview on Masters in Business in which he provides a great example of why a concentrated portfolio makes sense, saying:

Q2 hedge fund letters, conference, scoops etc

Joel Greenblatt

GREENBLATT: Right, well Warren Buffett has a good response to that as well. You know he says listen let’s say you sold out your business and you got $1 million and you are living in town and you want to figure out something smart to do with it. So you analyze all the businesses in town and let’s say there’s hundreds of business and you stick to — if you find businesses where the management’s really good, the prospects for the business are good, it’s run well, they treat shareholders well, and you divide your million dollars between eight businesses that you researched well in town, no one would think that’s imprudent, they would actually think that was pretty prudent.

But when you get to call them stocks and you get stock quotes daily on these pieces of paper that bounce around put people put numbers on it and volatility and all these other things where really it’s not that meaningful, you know from one sense if you’re investing in businesses and you did a lot of research and invested in eight different businesses with the proceeds of your sale, people would think you’re a pretty prudent guy.

All of a sudden if you invested in stocks and did the same type of work, people think you’re insane, and it’s just an interesting analogy that I was think of when people make fun of me that I was that concentrating.

RITHOLTZ: You know the flip side of that is imagine if we got prints minute by minute for the valuation of our homes, people would lose their mind, they wouldn’t be able to manage it. So that understanding —

GREENBLATT: Well, imagine if you had a theory of buying homes, I’m going to buy the ones that went up the most last three months or six months. I mean it’s a really good analogy. I usually use the house analogy when people asked me how do we go about in valuing stocks and people understand completely when they’re buying a house, there are certain things you would do and we don’t do any different than owning a business.

You can listen to the entire interview here:

For more articles like this, check out our recent articles here.

Read the full article here by The Acquirer’s Multiple

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted for being a sophisticated and loyal reader.

Welcome in the new year by signing up up for ValueWalkPremium today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 1/31/2019 or after next 30 23 subscribers take advantage whichever comes first – please do not share this discount with others