Joel Greenblatt - The Spinoff King (You Can Be Be A Stock Market Genius)

Joel Greenblatt’s hedge fund – Gotham Capital – delivered annualized returns of 50% from its inception in 1985 to early 1995, when the fund returned all outside investors’ capital.

Despite his successes, Joel Greenblatt isn’t cagey about sharing some of the investment strategies that brought him such great success.

In fact, he has done so with three books, starting with “You Can Be A Stock Market Genius,” first published in 1997.

A defining characteristic of his strategy is to find and profit from special investment situations, such as spinoffs, corporate restructurings, and in more general terms, any type of trade offering an asymmetrical payoff to the upside.

In this video, I talk about one of the many examples in the book: the 1993 spinoff of Host Marriott.

In a spinoff situation, the parent company decides to separate one of its subsidiaries or divisions into a standalone entity.

Spinoffs have a number of benefits for companies, such as making it easier for investors to evaluate the merits of two often completely unrelated businesses under the same company – for example, a steel business and an insurance business that are both part of a larger conglomerate.

I will be explaining Mr. Greenblatt’s thought process in evaluating Host Marriott, a spinoff company many people thought would be a terrible investment, but which ended up nearly tripling in just four months – making Joel Greenblatt and his fund a very nice return on investment.

References:
Greenblatt, Joel; “You Can Be A Stock Market Genius”; ISBN-13: 978-0-684-84007-9 (Pbk);
p.56; p.57; p.58; p.64; p.65; p.66; p.68; p.70; p.73; p.234; p.271 (graph);
The New York Times – A Book, Four Funds and a Flood of Cash; Published 10/23/2014
“In his first book, […] Mr. Greenblatt said he gained 50 percent a year before fees from 1985 to
1994, just before he returned all outside investors’ capital.”
Lewis, Michael; “The Big Short: Inside the Doomsday Machine”; ISBN: 9780141983301;
p.39 (Thoughts on the title of the book)
p.40
“We want to buy a quarter of your new hedge fund. For a million dollars.”
Interview with Dr. Michael Burry on 60 Minutes; Aired March 10, 2010
“I think a lot of clients were just glad to be done with it, at the end.
We made $725 million, I think, in the funds in 2007 and, in the first six months of 2008 there
was about $730 million in withdrawals.
Perhaps I had made the trade too big for the fund, and my confidence in the trade had ticked
off some people.”
Forbes – Spin-Offs Outperforming The Market This Year (March 5, 2019)
Ackman, William; Letter to John T. Schuessler - Chairman, CEO and President of Wendy’s
International, Inc.; Dated July 11, 2005;
“Clearly, our voice is not alone. We believe that many Wendy’s shareholders and members of
the Wall Street research analyst community have frequently questioned the benefits of having
Tim Hortons under the same corporate structure as Wendy’s given the minimal synergies that
exist between the two companies.”

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