Joel Greenblatt Combines Active and Passive Investing

 In a recent episode of WealthTrack, Consuelo Mack interviewed Gotham Asset Management’s Joel Greenblatt, who shared his thoughts on active and passive investing and how he has combined the two in an effort to discourage investors from bailing out of a strategy in tough times.

Greenblatt explained that human nature leads investors to pile into well-performing funds and pile out of underperformers—which ends in lost opportunity and dollar losses as well. He discussed the genesis of the Gotham Index Plus fund—which combines index investing with a long/short “overlay” that, Greenblatt says, “takes advantage of our favorite stocks” and minimizes some market downside risk. “As long as our longs outperform our shorts,” Greenblatt says, “we can add to the portfolio.”

Mack asked whether the approach represents a concession that passive investing is the way to go in today’s market and that an active management style just doesn’t work as well anymore. Greenblatt argued, however, that is represents his attempt to use what he knows about human tendencies and how emotions can get in the way of investment returns. “I’m actually looking at human nature,” he said, “and trying to work with it because one of our goals is to make as much money as we can for our investors. I want as many people to stay on the ride with us as possible.”