📖Joel Greenblatt
Earnings Quality Analysis
Evaluate earnings quality, not just quantity.
Not all earnings are equal. Look for recurring, cash-backed earnings rather than accounting profits. High-quality earnings are predictable, sustainable, and convertible to free cash flow.
🏠 Everyday Analogy
📖 Core Interpretation
In Earnings Quality Analysis, 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：Cash-backed recurring earnings indicate true business strength.
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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.
⚠️ 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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