Simple vs Different
Want to make over 800x your money? Invest with Joel Greenblatt for 20 years. From 1985 to 2005, Joel Greenblatt’s Gotham Capital boasted returns of 40% per year (that is not a typo). Wow.
Here are his first few years against the S&P 500:
Note that Joel’s performance was net his 30% fees!
There is a lot any investor can learn from Joel. From investing to philanthropy- his career has been filled with success. If you read through his works, there are plenty of insights- but my favorite is this:
There are lots of smarter people who can do better spread sheets than I can; there are lots of smarter analysts than me. I think the difference to how we have been able to do it is that we think simply and a little bit differently.
That’s his key to investing. Simple + Different.
As an example of thinking simply and differently:
Host Marriott had physical hotel properties and billions of debt. It was the smaller business to International (1/10th the size!) and was highly levered. For reference- they had $25/share in debt and $5/share in equity- that’s 5x leverage. Yikes!
Who would want this crappy over-levered hotel business over a beautiful income-producing management business?
Joel Greenblatt wants this crappy over-levered hotel business.
His thinking was as follows:
Host Marriott’s debt could easily be managed
Trump’s miracle CFO would be CFO of Host Marriott (Trump would have gone broke several times if not for this CFO)
A 15% move in the asset value would double the stock due to the leverage
Insiders owned 20% of Host Marriott’s stock
Simple and different. At the time, most institutions would dump this stock- believing it to be an annoying dumpster fire that would be difficult to explain in their quarterly portfolio review.
So, what happened? Within 4 months of the spinoff, Host Marriott tripled in price. Not bad.
Stepping away from the crowd and tilting your head slightly in a different direction than everybody else can be a huge advantage. Joel used this mindset to compound his money for decades. Many other great investors have simple theses- be simple, be different!
I was watching an interview with Andrew Austin, and he described his highly regulated business as this:
Own assets
Produce cash flow
Stretch assets out
Find more opportunities
Repeat
This just sounds like a utility business!
However, the business he was talking about was RockRose! If you Google RockRose, or look them up on any database- you will see that they are an oil and gas producer- not a utility.
You may also see this:
Is Andrew wrong? I do not think so. I think that he has a simple yet differentiated view into his business, which provides him with the ability to produce insights such as this!
I have not spent nearly as much time learning about Andrew Austin’s companies as the man himself, but this past week I may have had an insight of my own. Look out in a few weeks when I produce an updated write-up on Kistos, plc! Although this insight does not change my general thesis- it does change how I think about the business and its potential addressable market.