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The hedge fund manager who taught Michael Burry to pick stocks accidentally destroyed the mutual fund industry in a free Talks at Google lecture on the two-line formula that turned $10,000 into $8.3 million.
His fund charged 2 and 20. He gave the strategy away in a $12 book.
Almost no one paying a financial advisor 1 percent of their retirement has finished the lecture.
His name is Joel Greenblatt. He founded Gotham Capital in 1985 and compounded roughly 40 percent a year for twenty consecutive years. He returned all outside capital in 1994 because his edge was too crowded to scale.
He has been teaching value investing at Columbia Business School every year since 1996. Michael Burry - the doctor who shorted the housing bubble in "The Big Short" - learned to pick stocks from Greenblatt's 1997 book.
The 55-minute clip in this video is Greenblatt at Google in 2017 walking a room of engineers through his Magic Formula.
The whole framework fits on one napkin. Rank every stock in the S&P 500 by return on invested capital, highest first. Then rank every stock by earnings yield, highest first. Sum the two rankings. Buy the top twenty. Hold for one year. Sell. Repeat.
That single formula would have beaten the S&P 500 by roughly 14 percent a year over the last three decades if any retail investor had actually followed it.
"Cheap and good beats expensive and average. Every time."
That is Joel Greenblatt at Google in 2017. He has repeated the sentence in every public talk since. Almost no retail investor buying Nvidia at $140 has heard it.
Every hedge fund on Wall Street pays $500,000-a-year analysts to backtest more sophisticated versions of the same equation. Every financial advisor in America charges you 1 percent of your account per year to underperform it.
The Talks at Google video is free on YouTube. "The Little Book That Beats the Market" is twelve dollars on Amazon.
Almost none of the millions who watched have ever run the two-line formula on their own portfolio.
The framework is free. The willingness to actually run it before your next stock pick, retirement rebalance, or brokerage transfer is the entire edge.