May 18, 2021 · 1h 0m · knowledge-project
#111 Joel Greenblatt: Investing Made Simple
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The Knowledge Project, host Shane Parrish interviews legendary investor Joel Greenblatt to examine value investing principles, downside-focused risk management, corporate capital allocation, and innovative approaches to education reform.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Shane holds 11.7% of the talking time here. How this is scored →
Shane as informed peer 4.0 Guest teaching 4.1 Guest disagreement 0.4 Shane pushing back 1.0
speaking balance: gold is Shane, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 16:52 Joel rejects the chess analogy
Joel immediately dismisses Shane's comparison of investing to chess grandmasters thinking moves ahead, clarifying that investing is much simpler and relies on patient pattern recognition rather than complex multi-move calculations.
Hardest push from Shane ▶ 22:16 Shane challenges market rationality and Fed interventionShane pushes back against market efficiency by questioning whether unprecedented Fed intervention and hundred-billion-dollar IPOs for cash-burning businesses are fundamentally irrational.
Biggest teaching moment ▶ 24:35 Joel breaks down accounting distortions in techJoel educates the host on why looking at headline GAAP losses is misleading, explaining that modern SaaS businesses expense upfront customer acquisition costs that function as long-term capital investments.
Shane holds their own ▶ 58:43 Shane connects credentialing to Cisco certificationsShane demonstrates strong domain understanding by drawing a direct historical analogy between Joel's alternative corporate credentialing proposal and the highly successful late-90s Cisco networking certifications.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Shane as informed peer | Guest teaching | Guest disagreement | Shane pushing back | Why |
|---|---|---|---|---|---|---|
| Evaluating Investors and the Power of Simplicity | 4 | 3 | 0 | 1 | Shane asks a sharp conceptual question about differentiating naive simplicity from simplicity achieved after mastering complexity. Joel agrees with the framing and elaborates on how he distills complex analysis into simple, obvious theses. The conversation is warm, mutually respectful, and collaborative. | |
| Finding Off-the-Beaten-Path Opportunities and Asymmetrical Insights | 4 | 4 | 0 | 1 | Shane sharpens the discussion by distinguishing between informational edges and perceptual edges. Joel validates the premise and shares a detailed case study of Ted Turner's acquisition of MGM to show how big-picture structural views trump microscopic modeling. The dynamic is cooperative and insightful. | |
| Joel Greenblatt's Early Career and Discovery of Value Investing | 4 | 5 | 1 | 1 | When Shane asks if investing is like playing chess moves ahead, Joel gently demurs, explaining it is far simpler and about patience for obvious pitches. Shane then prompts Joel to drill into position sizing, where Joel explains why he sizes by downside risk rather than upside potential. | |
| Navigating Speculative Bubbles, Modern Accounting, and Monetary Policy | 4 | 5 | 1 | 2 | Shane questions whether Fed policy and money-losing IPOs represent market irrationality. Joel reframes the market, differentiating healthy tech giants from speculative froth while educating on how modern accounting rules mischaracterize customer acquisition investments as immediate losses. | |
| Evaluating Corporate Management and Capital Allocation | 3 | 4 | 0 | 1 | Shane asks structured questions on evaluating executive management qualitatively versus quantitatively. Joel explains why interviewing CEOs is often misleading compared to analyzing historical capital allocation records, illustrating his point with Warren Buffett's investment in Coca-Cola. | |
| Executive Compensation, Long-Term Value Creation, and Accounting Clarity | 4 | 4 | 1 | 1 | Shane asks Joel about the distortive effects of stock option compensation and misleading accounting standards. Joel minimizes rigid accounting debates as a sideshow, arguing that transparent disclosure and long-term economic alignment matter far more than GAAP technicalities. | |
| Education Reform, Success Academy, and Alternative Credentials | 5 | 4 | 0 | 0 | Shane prompts Joel on his educational reform work with Success Academy and adds relevant historical context by comparing alternative skill certifications to late-90s Cisco IT credentials. Joel enthusiastically agrees and outlines how corporate skill standards could unlock untapped urban talent. |
Statements from this episode (16)
Greenblatt: Puzzle-oriented investors outperform money-driven investors long term
“Some people are in it for the money and some people like solving puzzles and figuring things out and figuring what's going to happen next. And you can kind of tell the passion of those people that they're just in it for the combination of challenge and interes…”
Greenblatt: Skip unpredictable businesses with fierce competition and fast tech change
“What do you do with a business where the competition's really fierce, technology's always changing, you know, you're always coming up with new products, you know, how do you predict what, you know, when you figure out a value of a business, you're trying to fi…”
Greenblatt: Wide 52-week price swings disprove efficient market hypothesis
“And so they would show every single stock really, the high for the year was a hundred, the low for the year was 42. And every year that happened for every stock. And it didn't make sense to me that the value of the business was right at all those times. And in…”
Greenblatt: Investors only truly learn by losing their own money
“You really don't learn unless you're really investing your own money and feeling how it feels to be wrong and lose a lot of money.”
Greenblatt: Being too timid on rare good ideas is investors' biggest mistake
“Position sizing is the most important thing. Being too timid on the few good ideas that come your way is like the biggest mistake people make.”
Greenblatt: Position sizes are determined by downside risk, not upside potential
“The biggest positions I've had are not my best ones. The ones that I think will go up five or 10 times. I'm really looking down, not up when I take a big position. So in other words, I will size the position larger if I don't think I can lose much money.”
Greenblatt: Tech mega-caps driving the market are not irrationally valued
“Most of the big indexes are driven by the Amazon, Google, Microsoft, Apple, and those businesses don't seem very irrational to me. Those are some of the greatest businesses that man has ever created partially due to the internet interconnectedness of the world…”
Greenblatt: A basket of 299 unprofitable billion-dollar companies gained over 100%
“There are now 299 companies that lost money in 2019. So this is pre-COVID. So there were money losers in 2019 with a market cap now over a billion dollars. And if you bought every single one of those money losers, those 299 companies with market caps over a bi…”
Greenblatt: US government should lock in 30-year debt while rates are free
“I think our average maturity is like six years. So I think that's insane. I think we should borrow it over 30 years for free. That would be my one suggestion to anyone listening. We should extend our maturities when they're lending us money for free.”
Greenblatt: Nikola held a $6.5B valuation despite appearing completely fraudulent
“I was just looking after it's turned out that it appears to be mostly a fraud and they really haven't come up with anything that they promised still has a market cap of six and a half billion.”
Greenblatt: Past capital allocation predicts future performance better than executive stories
“And the best rule of thumb that I learned was if this management team was good at allocating capital, before I walked in the door, the assumption that they would continue to be good was a really good assumption. And if they were really bad at it, no matter wha…”
Greenblatt: Interview performance correlates poorly with job performance compared to references
“It's like they say when you interview people, some people are good at being interviewed and some people are not. Has little correlation with how they will perform if you hire them. Really, the best advice I got is talk to the people that they've worked with in…”
Greenblatt: Selling at cost and profiting from memberships creates an unbeatable flywheel
“So it's a flywheel where if you sell people products at cost, it's very hard for people who are trying to make a profit to beat you. But if you can make all your money on the memberships, just selling more and more memberships for the ability to buy it costs, …”
Greenblatt: Incomprehensible Financial Statements Usually Signal Intentional Obfuscation
“And I just figure if I can't figure it out, they don't want me to figure it out. And I got to go to the next one. I mean, I'll spend a lot of time doing it, but if I can't figure it out, then I just assume that's intentional. And I don't view that as a good th…”
Greenblatt: Success Academy's low-income students outperform New York's wealthiest districts
“There are now 20,000 kids in 47 schools, and they would be the top district in New York City, and most of the kids 87% are minority low income. Kids. And yet they beat all the wealthiest school districts.”
Greenblatt: Scalable education requires training average teachers, not hunting top talent
“The model cannot be just hiring the top one percent of teachers because you run out of those. The model has to be giving the supports necessary and the training necessary to an average teacher to become a great teacher.”