See This Value Investor’s Take on the Market Situation and Future Outlook

The investor added that he is still confident in the companies in which Gotham has long positions, because they will benefit from a “renewed appreciation” as they have high cash flows relative to price and can generate “attractive returns on capital.” On the other hand, the companies that Gotham has shorted will underperform the market and will lag in comparison to the stocks from the long side of the portfolio according to the investor. “Over the last several years, these “hope” stocks have been priced with little concern for the risks to those high expectations,” Mr. Greenblatt said.

“As we often say, stocks are not pieces of paper that bounce around that we put Sharpe or Sortino ratios on. Stocks are ownership shares of businesses that we value and then either buy at an attractive discount to that value or sell short when they are expensive relative to value. This process often takes time to work, but this is the only way we know how to invest.”

He added that the recent market turmoil will help Gotham’s strategy to make more profits in the coming year. Another reason that will help Gotham to achieve “attractive long/short spreads” is the valuation disparity between large and small-cap stocks. Currently, Gotham’s portfolio contains long positions that are “skewed toward the cheapest stocks among the larger caps,” while its short positions are “skewed toward the most expensive smaller cap stocks within an already very expensive small cap universe.”

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