Greenblatt said the stock market overall today is "at about the 25th percentile, towards expensive, over the last 25 years. That means the market has been cheaper 75 percent of the time," and more expensive only a quarter of the time, he said.
That said, "in our long portfolio, we're able to buy ... cheaper than average over the last 25 years," said Greenblatt.
"There is a real dichotomy" between the richly valued broad market and the cheapness of many individual stocks, he said.
One way Greenblatt identifies cheap but worthy stocks in his "Little Book" is to overlay a company's return on invested capital against its earnings yield relative to its net worth. A basket of 30 or so stocks that scored well on both parts of this "magic formula" should be refreshed, he wrote, about once a year for optimal returns.
On the day of our interview, that screen, which is made freely available at Magicformulatinvesting.com, turned up such names as Apple, Cisco, Gamestop, Gilead, Fitbit and Viacom.
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Of course, many of those companies have become cheap for good reason.
But, "I don't just own Apple," Greenblatt said, speaking hypothetically. "I own what I would say is a bucket of Apples. And I know my bucket's going to work out because companies that gush cash and earn high returns on capital, and have nice niches, they tend to work out very well."
"Stocks are not pieces of paper that bounce around," he said. "As far as we're concerned, they're ownership shares of businesses that we value and then try to buy at a discount. So that's value investing. Figure out what a business is worth, and pay a lot less."