Value Investing Pro

About one month ago, readers of Gurufocus.com were given the opportunity to ask Joel Greenblatt anything that was on their minds. A total of 60 questions were asked, most of them related to the Magic Formula.The questions ranged from post graduate work, favorite investment books, to any book deals in the feature. This week, Gurufocus received Joel Greenblatt’s answers which could be found by going to “Answers from Joel Greenblatt Are Here!”

Asked whether he has any books in the future (djswinney, Bertrand), Joel Greenblatt had the following to say:

I do plan to write another book. It will also be about a basic framework for successful investing written in a way I hope my kids can understand. As for timing, I’ll let you know when I finish it! (I hope before they all grow up!)

Our Thoughts On Joel Greenblatt’s Answers

The questions asked were great and the answers could have been better. One questions in particular stands out,which was questions #17.

Question 17. Because free cash flow growth requires not only high returns on capital but also a reinvestment opportunity, have you explored adding a criterion to the screen that would indicate the presence of a significant opportunity for reinvestment? (jdt)

JG: I think this is a great question. The big picture is: the main thing you should be concerned about in the future are incremental returns on capital going forward. As it turns out, past history of a good return on capital is a good proxy for this but obviously not foolproof. I think this is an area where thoughtful analysis can add value to any simple ranking/screening strategy such as the magic formula. But keep in mind, buying a diversified portfolio of companies who have achieved high returns on capital in the past and that can be purchased at bargain prices has worked quite powerfully, buying an individual company without further analysis of this issue is another story.

Free cash flow is something we focus on in our PRO membership. Recently, one of our stocks announced a stock buyback program which boosted the stock 8% on that particular day. Free cash flow is something so obvious, but is often overlooked by institutional investors and individual investors alike. Why!? High returns.  While Wall Street crosses their fingers and hope a company can negotiate terms with a company’s creditors in hopes of the stock “jumping”, our stocks have strong balance sheets, are buying back shares and making acquisitions.

Finally, Q&A sessions like this come around every once in a while. It’s great to see individual investors get their questions answered by professionals.  The questions/answers might not be the best, but the fact that they took place, might provide a nuggett or two. Personally, I’m looking forward to the new book. Q&A’s like this are the reason we added Gurufocus.com to our list of Value Investing Resources.

Related posts:

1. Joel Greenblatt On Yahoo Tech Ticker OK, if I keep this up, this site shall soon...
2. Joel Greenblatt Bloomberg 10-19-09 On the same day that Joel Greenblatt appeared on CNBC,...
3. Required Reading For Joel Greenblatt’s Columbia Class While Columbia Business School might be several thousand miles away...
4. Joel Greenblatt On CNBC 10-19-09 On the day that Joel Greenblatt officially launched Formula Investing,...

Related posts brought to you by Yet Another Related Posts Plugin.