6/14/2009

Joel Greenblatt meets Ben Graham and Warren Buffett

Ben Graham focused on buying as many statistically cheap stocks he could find. Buffett after many years of less than perfect results from investing in cheap ideas/cigar butts with textile mills, department stores and windmill companies his approached was modified. His modified approach was to focus on good companies at cheap prices such as Coca-Cola. The approach of buying good companies for cheap prices is exactly the focus of Joel Greenblatt. He took the best from both investors and with his ability to forecast normalized earnings several years out this approach has been unmatched for many years running the hedge fund Gotham Capital.

For this week’s direct positive insider activity I selected only stocks that would be potentially acceptable for further research to Ben Graham, Buffett and Joel Greenblatt.

ImmuCell Corp (ICCC)
Hurco Companies Inc (HURC)
Advocat Inc (ACVA)
Ramtron International (RMTR)
Nutraceutical International (NUTR)

Additional data on the above:

Link


All ideas last week with positive insider activity (not necessarily acceptable to Graham, Buffett or Greenblatt)

Sorted by amount of last week’s insider purchases/EV

Link

3 comments:

Anonymous said...

"Buffett after many years of less than perfect results from investing in cheap ideas/cigar butts with textile mills, department stores and windmill companies his approached was modified"

This isn't true, less-than-perfect results? No way. Buffett Partnership always put up tremendous results. The first 10 years of Buffett Partnership he averaged 24% vs the Dow's 10%. Hahaha "less than perfect results." Don't think so.

ShadowStock said...

Anonymous

My comments about Buffett were only to bring home the point that he drifted away from his mentor Ben Graham in terms of Grahams strict adherence to statistically cheap stocks such as low P/B. He was persuaded by Charlie Munger to pay up for well run companies such as Coca-Cola and See's Candy to name a few.

• Business Week - July 5, 1999: The Warren Buffett You Don't Know
o Buffett did not come fully into his own until he and Munger collaborated on the $25 million acquisition of See's Candies in 1972. The San Francisco maker of boxed chocolates was the first business of any sort for which Buffett paid more than book value--three times book, in fact.

He readily admits his purchases of textile mills, department stores and windmill companies was not the most lucrative approach.
“Munger urged his friend to leave the cigar butts in the gutter and think of value in more expansive terms. Says Buffett: ''Charlie kept pushing me back to the idea that what we really needed to own was the wonderful business.''

Even so, it took Buffett a long time to tailor Graham's straitjacket conservatism to the more generous dimensions of his own personality. His $11 million purchase of Berkshire Hathaway in 1965 was a costly case in point. Initially, Buffett saw the floundering old-line company as a classic Graham play. But then the textile manufacturer rallied unexpectedly, and Buffett sank more money into it on the belief that this cigar butt had a future after all. It did indeed, but not in textiles.”


Hope this clear up the point
John

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