Shai Dardashti finally shares the insights he gained from his January 18th meeting with Joel Greenblatt. I had been looking for Shai’s meeting notes for a couple of weeks. However, my suspense was turned to a slight disappointment with the answers Shai was able to share with us.
After reviewing the notes, I don’t think I see any direct responses to the questions we submitted to Shai:
- What do you think of going private transactions in this post Sarbanes Oxley Act environment that didn’t exist when you wrote “You Can Be A Stock Market Genius”? Do you think it is profitable for small investors to participate in these risk arbitrage opportunities associated with the reverse split/fractional shareholder cash outs used for some going private transactions? How should investors be evaluating which of these opportunities are good and which ones are bad?
- The Magic Formula produces an interesting list of companies. Some of the profitable companies on this list however don’t appear to have sustainable competitive advantages and their high profits may be temporary. When you personally use the results of the Magic Formula do you try to sort out which companies have sustainable competitive advantages versus the ones that don’t? What other criteria do you use to select which companies to invest in from the result of the Magic Formula?
Greenblatt did touch on the issue of special situations. Shai notes indicate Greenblatt said, “Special situations are just value investing with a catalyst.” He also notes, “Finding complicated situations that no one else wants to do the work to figure out is a way to gain an advantage.” That’s where my advantage regarding going private transactions comes into play. That advantage can also be your advantage if you gain access to Contributor’s Corner.
I found the following Joel Greenblatt’s comment regarding his Magic Formula reassuring. “The Little Book is for people who cannot value companies. If you can value a company, you can start with the MF list. Then estimate normalized earnings, normalized free cash flow, and expected growth rates.” Joel acknowledges that digging deeper into the Magic Formula list is productive if you understand how to value a company, which somewhat addresses some earlier comments that I received.
“International investing may offer the best opportunity, at least in terms of cheapness,” notes Greenblatt. I plan on preparing myself better in regards to international investing. It is not something easy to do, and it can be expensive. However, like everything else, a little homework and preparation can help you achieve success.
I encourage you to visit Shai Dardashti’s site for the complete story.