📖Joel Greenblatt
Probabilistic Thinking
Think in probabilities, not certainties.
Think in probabilities, not certainties. Every investment has a range of possible outcomes. Weight your decisions by the expected value of each scenario.
🏠 Everyday Analogy
📖 Core Interpretation
In Probabilistic Thinking, 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：Expected value calculations guide rational decisions.
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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
McDonald's Temporary Earnings Slump (2002)
McDonald’s faced operational issues and lower earnings, leading investors to punish the stock despite strong underlying economics and durable brand strength.
✨ Outcome：Bought during the period of pessimism and profited significantly as operations improved and the valuation reverted upward.
2
Holding Through the Financial Crisis (2008)
An investor following Greenblatt’s Magic Formula held a diversified portfolio as the 2008 crisis caused steep declines across value names.
✨ Outcome：By holding and rebalancing annually instead of selling in panic, the portfolio recovered and outperformed the S&P 500 over the following years.
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