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Heard Mr. Greenblatt this morning.

Really, there was very little new that you don't already know if you
have read the book and this board.

A few items:

He was asked about going long the top decile names and short the
bottom decile names. He said that strategy would actually add
volatility. Every 7 or 8 years, something blows up and the good
stocks (which you are long) go down and the bad stocks (which you
are short) go up.

He was asked about standard deviations and sharpe ratios. He said
they ran those numbers but did not put in book because it's not the
right way to think about risk. If you are buying a piece of a
business for less than it's worth, then you shouldn't care about the
share price bouncing a round a bit.

He did say that sharpe ratios were three times better than the
market's sharpe ratio. He said drawdowns in magic formula strategy
could be significant over a few months or a year, but that the
formula works long-term. He said the volatility of the MF is one of
the reasons that hedge funds and other institutions won't follow
formula and ruin its advantage.

When asked specifically about the details of the earnings yield
formula, he declined to address specifics, saying he didn't want to
bore people. He did offer to one individual in book signing line
that Greenblatt's team had their own formula for determining excess
cash and how to treat other assets, and they applied those formulas
to all companies. For other assets, like deferred taxes, he
apparently took a ratio of the balances and applied it to all
companies.

To the question of why the website does not rank further among the top 25, 50 or 100 names, he said that there is not a statistically significant difference among the top 25 or top 100 stocks because they all are members of the top decile. He feared that if they ranked them any more within the top 25, people would just buy the top 8 and that would cause problems.
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