📖Joel Greenblatt
Understand Before Investing
Only invest in what you can explain simply.
Never invest in a business you cannot explain in simple terms. If you can't describe why a company is valuable, you don't understand it well enough to own it.
🏠 Everyday Analogy
📖 Core Interpretation
Joel Greenblatt emphasizes durable business quality over short-term noise. A strong model, real competitive edge, and disciplined capital allocation matter more than quarterly excitement.
💎 Key Insight：Simplicity of explanation tests depth of understanding.
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❓ Why It Matters
Without business-quality filters, investors drift toward stories rather than economics. Durable cash generation is what supports long-term valuation.
🎯 How to Practice
Use a checklist covering moat, management, unit economics, and capital allocation; track long-term cash generation instead of quarter-to-quarter noise.
⚠️ Common Pitfalls
Buying narratives instead of cash-generating economics
Overreacting to short-term operating noise
Ignoring management quality and capital allocation
📚 Case Studies
1
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.
2
Magic Formula Small-Cap Portfolio (2012)
An investor built a 20–30 stock portfolio of high-ROC, cheap small caps per Greenblatt’s method, then suffered early underperformance and volatility.
✨ Outcome：Maintaining the rules-based portfolio for several years led to strong excess returns versus the market, illustrating the payoff of disciplined holding and rebalancing.
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