Greenblatt on market cheapness

Market Folly posted the latest Graham & Doddsville newsletter. On page 9, Greeblatt notes:

right now we’re in about the 87th percentile towards cheap … When it has been this cheap, the forward return for the Russell has been about 17% an then about mid-30’s two years out. … even in the 50th percentile, you would expect to make 8% or 9% based on the history of the last twenty-something years … It’s a very attractive time to invest in the market

Greenblatt was asked how many ideas he passed on. He replied:

If I looked at 40 or 50 ideas, and, while perhaps 12 or 13 of them would have worked out, if I end up only buying one, that’s okay. … Not losing money is a good way to ensure that your portfolio has good risk/reward profile … if you don’t lose money, most of the alternatives are good. Even if you don’t know what the upside is – if you just know there’s upside – you can create scenarios where you have excellent risk/reward

Further comments:

Some things you have to learn by doing them wrong, so I encourage people to risk being wrong. You can’t be a good investor without investing. As you gain experience you start to understand risk/reward; you start understanding what looks like a good opportunity and what doesn’t; you recognise when you have more knowledge that the market about a given issue and when you don’t.

About mcturra2000

Computer programmer living in Scotland.
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