Review: Value Investors Club

Founded in 1999 by hedge-fund managers Joel Greenblatt and John Petry of Gotham Capital, Value Investors Club is a highly exclusive club for discussion of value-based investment ideas and of “special situations” (spin-offs and recapitalizations). It currently has 220 members out of a maximum allowed of 250. It is free to join, and the club management even pays a $5,000 reward every week to the member with the top investment idea.

The Value Investors Club (“VIC”) is a unique example of an online community with extremely high quality content and an intensely engaged audience. It also helps the participants to make money—sometimes in the millions of dollars. It is the online equivalent of an exclusive dinner with Warren Buffett, George Soros, and other sophisticated investors.

The requirements for entry are twofold: first, write an “A+” description of an investment idea, in keeping with the site’s Buffett/Graham investment style. VIC is primarily interested in opportunities based on value (underpricing) or special situations (i.e., unusual events such as spin-offs). VIC receives about 100 member applications per month, of which only about 1 in 15 are accepted. Second, assuming you are accepted, you must provide between two and six investment ideas per year. The reason for the six-idea maximum is that VIC only wants your very best investment ideas.

The site is sponsored by Joel Greenblatt and John Petry of Gotham Capital, a respected hedge fund which returned 50% per year during the 10 years that it managed outside capital. Joel Greenblatt teaches securities analysis at Columbia University’s Graduate School of Business. He also wrote the 1997 book, You Can Be A Stock Market Genius.

As a result of this quality backing, the site’s members are approximately 50% professional investors and 50% amateurs. This is a much higher ratio of serious professional investors than you will find on Yahoo Groups, Motley Fool, or almost any other investing discussion site. The Albourne Village (village.albourne.com) is one of the few other online communities where serious institutional investors congregate.

VIC’s members are extremely well-behaved, because the community is so tight and because members get enough value from participation that they do not want to publicly do something foolish. John Petry says that since the site launched, he has had to edit very few messages for rudeness or other inappropriate behavior. He also ejects about 20% of the participants each year, almost always for failure to contribute good ideas. Each idea contributed by participants is rated by the community on a numerical scale.

Anyone can view the site’s past discussions, with a two-month lag on the presentation of data. The real-time discussion, ideas, and commentary are only available to the members.

Most unusual about the site is the way that information flow is centralized in Greenblatt and Petry. All participants use screen names, which are usually pseudonyms unconnected to their real names. Only Greenblatt and Petry know people’s real names, contact details, and firm. Participants have no ability to private-message one another. Therefore, there is no real way in which participants can attempt to recruit other participants to their firms, or even simply to set up an in-person meeting. Instead, they must return to VIC to benefit from participation in this highly exclusive community.

Greenblatt and Petry have a very reasonable argument for this unusual centralization of information: they built and manage the community for free, and want to retain the intellectual capital in the community.

Gotham has spent an enormous amount of time over the last four years and well over a million dollars to develop and run VIC; the weekly prizes alone cost them $260,000/year. However, both Gotham and its participants get more than enough value from the site that it is profitable for the firm to run.