We continue our discussion of Joel Greenblatt's classic book, You Can Be A Stock Market Genius, with a focus on chapters 3 and 4.Chapters 3 and 4 of the book are the ones everyone thinks of when they think about the book. Most especially, spin-offs step into the limelight in Chapter 3. The principles Greenblatt lays out - shareholder mismatch, the opportunity to find overlooked ideas, the chance to do close reading - all seem to be relevant today, and yet spin-offs don't seem to be as attractive a category. That can be seen from the performance of CSD, and we take an argument SA author Ian Bezek made to interrogate how spin-offs may or may not work in the future.
We also go into the discussion on risk arbitrage. I remember being surprised when I first read this book and saw Greenblatt was not a fan of the category, but in re-reading it makes more sense. We talk about that, as well as merger securities, and of course our favorite jokes and quotes.
Topics covered 3:00 minute mark - Chapter 3 - the spin-off bible 8:00 - Why do spin-offs work? 11:30 - The case against spin-offs 17:30 - The Strattec (STRT) example and the value of a good valuation range 23:00 - The paragon of fundamental analysis 28:00 - Boring = good 33:50 - Chapter 4 and the trouble with merger arb 43:00 - Merger securities 46:30 - Today's larger than life characters 50:30 - The Viacom (VIAB) / Paramount example and the verdict on this approach 55:30 - Favorite quotes and jokes