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A hedge fund legend reveals his simple strategy for retail investors.
Joel Greenblatt made a fortune running Gotham Capital, a hedge fund, posting average annual returns of 40 percent since inception in 1985. Greenblatt, a mere 44 years old, has achieved such success that he and his partners have since returned investors' capital and closed the fund. They launched a new fund, a fund of funds currrently worth about $1.6 billion, in which his group manages only a portion of the assets. (Very prudent diversification, no?)
Now Greenblatt wants to help the little guy, the retail investor-your client; and with results like that, the retail investor will be inclined to listen. Greenblatt's new book, The Little Book That Beats the Market, (John Wiley & Sons, 2005), is a simple value investing treatise that allows retail investors to create a portfolio based on Gotham Capital's own strategy (the one that made Greenblatt and his cohort rich). And guess what the message is? "You can do it yourself." On page 113 of the book, Greenblatt writes, "If your stockbroker is like the vast majority, he or she has no idea how to help you! Most get paid a fee to sell you a stock or a bond or some other investment product. They don't get paid to make you money. Of course, while it's in their interest for you to be successful and many may be fine, well-intentioned professionals, a stockbroker's main incentive is still to sell you something." (What do you think of that?)
There are more such anti-Wall Street sentiments, particularly in his first book, You Can Be A Stock Market Genius (Fireside), first published in 1997. But again, Greenblatt, a Long Island, N.Y., native who got his seed capital from Michael Milken, says, "The bottom line is, even if you live in Fantasyland, where fees and commission have no influence on investment advice, you still must face a harsh reality. Your broker, trustworthy or not, has no idea how to invest your money."
But in person, Greenblatt qualifies those statements some, saying he has friends who are financial advisors, and, in any case, he didn't mean that no financial advisor can help retail clients, only the good ones can. But, that's not...