SHOOTING PERPETRATED BY A
TROUBLED 19-YEAR-OLD.
MARIA, BACK TO YOU.
MARIA: THANK YOU.
IN A MARKET THAT IS UP NEARLY
40% SINCE ELECTION DAY, IT CAN
BE TOUGH FOR INVESTORS TO FIND
VALUE.
OUR NEXT GUEST HAS MADE A CAREER
OUT OF DISCOVERING HIDDEN VALUE
IN THE STOCK MARKET, BEING DO
YOU KNOWED THE VALUE GURU.
YOU MAY KNOW OF HIS BOOKS THAT
WERE BIG HITS WITH INDIVIDUAL
INVESTORS INCLUDING "YOU CAN BE
A STOCK MARKET GENIUS" AND "THE
LITTLE BOOK THAT BEAT THE
MARKET."
OVER THE YEARS, IT'S OUTPACED
THE S&P 500 BY 6% UPT'S UP MORE
THAN 5% YEAR TO DATE WITH MORE
THAN $5 BILLION IN ASSETS UNDER
MANAGEMENT.
GOTHAM ASSET MANAGEMENT MANAGING
PRINCIPLE JOEL GREENBLAT JOINS
ME NOW FROM THE FORBES ADVISER'S
CONFERENCE IN VEGAS.
THANKS FOR JOINING US.
>> MY PLEASURE.
MARIA: LET'S START OFF WITH
WHERE YOU SEE THINGS HERE.
CHARACTERIZE THE BACKDROP FOR
INVESTING.
OBVIOUSLY THE MACRO STORY HAS
BEEN GOOD AND HOW YOU VIEW THIS
MARKET AT CURRENT LEVEL.
>> SURE.
WELL, YOU KNOW, THE STOCK MARKET
IS JUST A BUNCH OF STOCKS ADDED
UP TOGETHER AND THAT'S THE WAY
WE LOOK AIT IT.
STOCKS ARE OWNERSHIP SHARES OF
BUSINESSES.
WE ACTUALLY GO AROUND AND VALUE
EACH INDIVIDUAL BUSINESS.
IF YOU THINK ABOUT THE S&P 500,
500 STOCKS ARE WEIGHED A CERTAIN
WAY AND WE VALUE THEM DAILY AND
WE'VE DONE THAT FOR 27 YEARS
INDIVIDUALLY AND THEN WE ADD
THEM UP AND RAIK THEM THE WAY
THE MARKET DOES.
AND RIGHT NOW WE'RE IN THE
16th PERCENTILE DIVORCE
EXPENSIVE OVER THE LAST 27
YEARS.
THE MARKER HAS BEEN CHEAPER 84%
OF THE TIME, MORE EXPENSIVE 16%
OF THE TIME.
THEN WE LOOK AT WHAT'S HAPPENED
AND WHAT'S HAPPENED IS FROM THIS
VALUATION LEVEL IN THE PAST,
RETURNS ON AVERAGE OF 3 TO 5%.
SO BELOW NORMAL BECAUSE THE
MARKETS AVERAGE ABOUT 10% A YEAR
FOR THOSE 27 YEARS AND THIS IS
3% TO 5% AND THAT MAKES SENSE
BECAUSE THE MARKET IS MORE
EXPENSIVE THAN IT'S
TRADITIONALLY BEEN BUT
IMPORTANTLY NOT NEGATIVE
EXPENSIVE RETURNS.
NOW WE CAN'T TELL YOU WHAT'S
GOING TO HAPPEN IN THE NEXT
YEAR.
AND THE WAY WE GET BACK TO THE
10% EXPECTED RETURNS COULD BE IN
A FEW WAYS.
ONE THE MARKET COULD FALL 18%
TOMORROW, THE OTHER IS IT
DOESN'T HAVE TO DO THAT, IT
COULD YURN EARN 3% TO 5% IN THE
NEXT THREE YEARS AND THREE YEARS
WE'LL BE BACK TO 9% OR 10%
EXPECTED RETURNS.
IT GIVES YOU A PERSPECTIVE OF
WHERE WE STAND.
MARIA: WITH ALL OF THAT
PERSPECTIVE, WHERE ARE YOU
FINDING VALUE IN THIS MARKET
RIGHT NOW?
>> WELL, I JUST TOLD YOU ABOUT
THE S&P 500 IN THE 16th
PERCENTILE.
RUSSELL 2,000, THE SMALL CAPS,
THAT'S IN THE 2nd PERCENTILE,
IT'S CHEAPER 98% OF THE TIME
OVER THE LAST 27 YEARS.
SO AS YOU WOULD EXPECT, WE'RE
FINDING MORE VALUE IN THE LARGE
CAPS AND THE SMALL CAP INDEX IS
EXPENSIVE.
WE DON'T SHORT THAT INDEX.
WE SHORT THE MOST EXPENSIVE
STOCKS IN THAT EXPENSIVE INDEX
SO THE OPPORTUNITY IS IN SMALL
CAPS.
MARIA: SO SMALL CAPS HAVE
CREATED OPPORTUNITY BUT THEY'RE
EXPENSIVE.
SO YOU WANT TO BE SHORTING SMALL
CAPS?
>> THAT'S WHAT WE DO.
THE OPPORTUNITY ON THE LONG SIDE
IS THE SMALL CAPS AND ON THE
SHORT SIDE IT'S MOSTLY IN THE
SMALL CAPS ALTHOUGH THERE ARE
PLENTY OF HIGH PRICED -- MARKET
IS EXPENSIVE IN LARGE CAPS.
IN THE EXPENSIVE MARKET WE SHORT
THE MOST EXPENSIVE STOCKS.
THERE ARE OPPORTUNITIES THERE
TOO.
MARIA: THERE WAS A LOT OF
DISCUSSION AROUND THE TAX PLAN.
THESE MALLER COMPANIES ARE
GETTING A HUGE BENEFIT HAVING TO
SEE A TAX RATE, A CORPORATE RATE
GO FROM ALMOST 40% TO 21%.
BUT IT'S THE LARGE CAPS TODAY
THAT YOU SAY YOU'RE FIEPING
OPPORTUNITY.
TELL ME HOW THE DOLLAR FITS INTO
THAT, JOEL.
AS THE DOLLAR TRADED UP, THAT'S
A NEGATIVE FOR THESE
INTERNATIONAL COMPANIES BUT OF
COURSE WE'VE SEEN SUCH
VOLATILITY AND MOST RECENTLY THE
DOW IS DOWN
DO YOU THINK THAT CONTINUES?
>> REALLY WE DON'T THINK ABOUT
THE WORLD THAT WAY.
WE'RE LOOKING MORE LONG TERM.
YOU KNOW, WE'RE LOOKING FOR
EARNINGS OVER YEARS.
AND THE DOLLAR IS NOT TOO FAR
OUT OF LINE WITH OTHER
CURRENCIES, IF YOU LOOK AT A
LONG TERM PERSPECTIVE.
WHAT IT'S GOING TO DO IN THE
SHORT TERM, THERE AREN'T MANY
PEOPLE GOOD AT PREDICTING THAT.
WE'RE LOOKING AT EARNINGS OVER
THE NEXT FIVE TO TEN YEARS.
AND WHAT HAPPENS IN THE SHORT
TERM IS NOT GOING TO AFFECT US.
MARIA: OKAY.
>> SOME OF THE LARGE CAP
COMPANIES HAVE A LOT OF
INTERNATIONAL BUSINESS, SOME
DON'T.
MARIA: YEAH, I THINK YOU'RE
ACTUALLY RIGHT.
AND A LOT OF PEOPLE RECENTLY
HAVE BEEN TALKING ABOUT THE
OPPORTUNITY.
EUROPE FINALLY WE'RE SEEING
GROWTH NUMBERS OUT OF EUROPE.
THE LARGE CAPS YOU'RE INVESTING
IN ARE BENEFITING FROM THE
RECOVERY WE'RE SEEING ACROSS THE
WORLD, CORRECT?
>> SURE.
YOU KNOW, WE -- THAT'S TRUE
BECAUSE A BIG CHUNK OF THEIR
BUSINESS IS INTERNATIONAL.
BUT WE ARE VERY U.S. SEN TRICK
IN WHAT WE DO, ESPECIALLY IN THE
LONG SHORT PORTFOLIOS WHERE WE
DON'T HAVE THE BALANCE
CURRENCIES AND TRADING COSTS.
WE FOCUS MOSTLY ON THE U.S. AND
OF COURSE U.S. COMPANIES DO
BENEFIT FROM INTERNATIONAL
BUSINESS, AS YOU KNOW.
MARIA: SO DO YOU THINK THAT THIS
MARKET HAS GOTTEN AHEAD OF
ITSELF?
I MEAN ARE YOU EXPECTING THE
VOLATILITY TO CONTINUE AND
IMPORTANTLY THE DECLINE?
>> WELL, YOU KNOW, WE'VE HAD
ACTUALLY A VERY SMOOTH UNTIL
MOST RECENTLY, A VERY SMOOTH
PERIOD OF TIME, WHICH IS NOT
NORMAL.
SO OBVIOUSLY I THINK THE
VOLATILITY WILL PICK UP FROM
WHAT'S HAPPENED OVER THE LAST
COUPLE OF YEARS AND I THINK
THAT'S GOOD NEWS FOR STOCK
PICKERS.
THERE IS FUNTS IN DISCERNMENT
RATHER THAN STEADY FLOW UP.
FOR VALUE INVESTORS LIKE US,
THAT'S GOOD NEWS.
MARIA: WHEN YOU FIND VALUE IS IT
A SPECIFIC SECTOR OR ARE YOU
LOOKING AT SPECIFIC SITUATION,
STOCK SITUATIONS.
CAN YOU SHARE WITH US WHERE THE
VALUE IS?
>> SURE.
WELL, YOU KNOW, I CAN NAME A FEW
LONGS THAT WE LIKE.
APPLE, AS YOU KNOW THE BIGGEST
COMPANY.
BUT WE STILL LOVE IT.
SOME PEOPLE THINK IT'S HAS
HARDWARE COMPANY THAT'S GOING TO
CRASH AND BURN LIKE ALL OF THEM
DO.
OTHER SAY NO IT'S A NETWORK, AN
ECOSYSTEM, PRODUCTS PLAY OFF ONE
ANOTHER.
THE INTEREST IS PROBABLY GRAY
BETWEEN THOSE TWO BUT IT'S
CHEAPER THAN THE MARKET.
IT'S A VERY GOOD BUSINESS.
THEY HAVE A GREAT NICHE.
SO WE STILL LOVE APPLE AND WE
OWN A BUCKET OF APPLE.
THESE ARE THINGS THAT GUSH CASH
AND HIGH RETURNS ON CAPITAL.
WE OWNER BOEING, WHICH IS A DUE
OPLY.
THERE'S ONLY ONE COMPETITOR
SELLING CHEAPER THAN THE MARKET.
GROWING FASTER THAN THE MARKET
WITH A BETTER MARKET FASHION.
WE'RE LOW ON GOOGLE WHICH IS
TRADING WELL BELOW THE MARKET
AND OBVIOUSLY GREAT MARKET.
SO YOU KNOW, WITH SOME OF
SO YOU KNOW, SITH SOME OF
SO YOU KNOW, SOMH SOME OF
SO YOU KNOW, SOME SOME OF
SO YOU KNOW, SOME OOME OF
SO YOU KNOW, SOME OFME OF
SO YOU KNOW, SOME OF T OF
SO YOU KNOW, SOME OF THEF
SO YOU KNOW, SOME OF THE BIG
NEEMS, BELIEVE IT OR NOT, ARE
RELATIVELY GOOD VALUES.
MARIA: IT'S INTERESTING TO HEAR
A VALUE MANAGER TALK ABOUT
TECHNOLOGY.
FOR THE LONGEST TIME WE THOUGHT
ABOUT THESE TECH COMPANIES ABOUT
THE GROWTH STORIES NOT THE VALUE
STORIES.
BUT YOU LOOK AT APPLE AND WHAT
IT'S TRADING AT RIGHT NOW, IT'S
GOT TO REPRESENT VALUE BECAUSE
IT'S TRADING BELOW THE MARKET.
>> BESIDES THE FACT THAT EVEN
WARREN BUFFET LIKES IT, WHAT'S
GOOD ABOUT IT IS THAT IT'S
REALLY GOT A PRETTY STICKY
BUSINESS.
IT'S GOT A BRAND NAME THAT
PEOPLE LOVE.
COCA-COLA HAS BEEN IN BUSINESS
FOR A LONG TIME AND IT'S JUST
SUGAR WATER BUT PEOPLE LIKE THE
BRAND.
APPLE HAS THAT GOING FOR IT.
BUT IT'S AN ECOSYSTEM OF
PRODUCTS THAT WORK TOGETHER.
SO IT'S FAR BETTER THAN THE
AVERAGE BUSINESS.
IT GETS MUCH BETTER RETURNS.
IT'S GOT A LOYAL FAN BASE AND SO
IF YOU CAN BUY THAT CHEAPER THAN
THE MARKET, THAT'S ON A RELATIVE
BASIS A GOOD DEAL.
AND SO WE LIKE IT.
BOEING, AS I SAID, IS A DUE
OPLY.
THAT'S VERY HARD TO CREATE THAT.
AND BIG BARRIERS TO ENTRY.
SO ALSO A GREAT BUSINESS AND
EVERYONE KNOWS ABOUT GOOGLE.
EVEN THOUGH IT'S CHEAPER THAN
THE MARKET, IT'S MUCH MUCH
BETTER THAN THE AVERAGE BUSINESS
AND MUCH STICKIER BUSINESS.
THESE ARE GREAT RELATIVE