📖Joel Greenblatt
Focus on Earnings Yield
Earnings yield is superior to P/E ratio.
Earnings yield (EBIT/Enterprise Value) is a better measure of cheapness than P/E ratio.
🏠 Everyday Analogy
📖 Core Interpretation
In Focus on Earnings Yield, Joel Greenblatt focuses on the gap between price and value. Returns come from paying less than what a business is worth, not from guessing short-term market moves.
💎 Key Insight：Earnings yield (EBIT/EV) accounts for debt and is comparable across capital structures. P/E ignores leverage and distorts comparisons. A company with $100M equity earning $10M looks cheap (10x P/E), but if it has $200M debt, enterprise value is $300M—much less attractive. Earnings yield provides an apples-to-apples measure of cheapness.
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❓ Why It Matters
Ignoring valuation turns even good companies into poor investments. Overpaying compresses future returns and leaves little margin when assumptions are wrong.
🎯 How to Practice
Estimate intrinsic value with conservative assumptions, set clear buy ranges, and act only when price offers a meaningful discount with acceptable downside.
🎙️ Master's Voice
If you wait for the perfect time to invest, you will wait forever.
Greenblatt encourages action. Waiting for perfection means missing opportunities. Good enough is good enough.
⚔️ Practical Guide
✅ Decision Checklist
- Am I waiting for perfection?
- Is this good enough?
- Am I missing opportunities?
📋 Action Steps
- Act on good opportunities
- Don't wait for perfect
- Accept uncertainty
🚨 Warning Signs
- Waiting for perfection
- Analysis paralysis
- Missing opportunities
⚠️ Common Pitfalls
Confusing a low price with true cheapness
Using one metric without business context
Overly optimistic assumptions that erase margin of safety
📚 Case Studies
1
Apple Post-Dot-Com Bust (2000)
After the tech bubble burst, Apple traded at a low earnings yield despite strong product pipeline and improving profitability.
✨ Outcome：Investors focusing on high earnings yield and durable business saw significant multiple expansion and outsized returns over the next decade.
2
Best Buy Value Opportunity (2011)
Best Buy’s price fell on fears of Amazon competition, pushing its earnings yield high relative to normalized profits and free cash flow.
✨ Outcome：Investors buying on elevated earnings yield saw strong recovery as buybacks, cost cuts, and stable demand lifted the stock in subsequent years.
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