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IC Interviews: Joel Greenblatt
Investors' Chronicle
The Magic Formula for Diversified Investing
30 years ago, returns on tangible capital for the S&P were about 20%. Now they're closer to 70%. And that's very important because if you want to grow your business 5%, if you take 25% of your earnings, you earn a dollar. You only need 7% of that dollar to reinvest at 70% and grow 5%. So really, when you have an asset like business, you get to keep today, you'd get to keep an S&P 93 cents of the dollar in earnings and still grow 5%. 30 years ago, you only got to keep 75 cents.
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