For those who are not familiar with Glenn Greenberg, Peter Lindmark, managing partner of Lindmark Capital Fund ([i]www.lindmarkcapital.com[/i]) wrote a summary on his investment philosophy entitled: Glenn Greenberg Value Investor. For your convenience I copy the most important part here:There is only one investment approach which makes sense to Mr. Greenberg, an approach that will not blow up an investor. Over fifty years one’s investment approach must be able to withstand all sorts of business environments. To never blow up as investor one needs to buy good businesses. Good businesses are: reasonably predictable, have zero to few competitors, enjoy high returns on invested capital, are necessary businesses, enjoy high profit margins, are unchallenged by new entrants, have growing earnings, and do not have really high rates of change.
After investors identify a good business, one must be able to figure out whether they are paying a price that undervalues that particular business relative to its long-term prospects. Chieftain does not perform relative valuations; they rely strictly on discounted cash flow analysis. When using a discounted cash flow model so much of one’s return is based on the terminal value, that an investor is putting a lot of faith in the longevity of the business. General Electric is the only one of twelve companies remaining in the Dow Jones Industrial average since its beginning in 1896. If an investor went through their portfolio today how much certainty would they have that the companies they owned would exist in fifty years?
What investors are really doing is buying the stream of free cash flows over the life of the business. When assessing this stream of free cash flow, Chieftain uses a hurdle rate of 14-15% (Columbia Lecture March 2006). Their hurdle rate was 20% but they adjusted it lower for the current interest rate environment. If they had not adjusted their hurdle rate lower for the present environment, little to no investments would have been made. They know their modeling is faulty and they will make errors, therefore this 14-15% discount rate gives them a “margin of safety,” as prescribed by Benjamin Graham in The Intelligent Investor.
Columbia University Professor Bruce Greenwald, another much celebrated value investor regards Greenberg very highly. He would go so far as putting Greenberg in the same league as Warren Buffett and Seth Klarman. Here is an excerpt of a Motley Fool interview in 2004:
TMF: … The last question for you is you've had a lot of great investment managers come to speak to your class. Is there one story that stands out for you that they've told?
Greenwald: I don't think it's the stories that are so useful. I think it's the people knowing what they're good at. I'll tell you two stories -- one where I was wrong and the person was right. There's a guy called Glenn Greenberg who absolutely says he's not a value investor and is just about the best value investor out there -- I don't know if you know him.
TMF: He's with Chieftain Capital, right?
Greenwald: Yeah. He's got a phenomenal record. So he came and he talked about a company called Iron Mountain (IRM). Iron Mountain is a document storage company. He talked about how they were rolling up the industry and buying local things. I said, "Oh, a national strategy -- a waste of time." But of course it wasn't. What they were really doing was they were doing a Wal-Mart (WMT) strategy. They were dominating one region at a time. And he invested in it on very favorable terms. He actually discovered it by accident. It worked out. I think he's had a lot of investments like that. And I think Seth does that, too.
So I guess the things that most impress me is that the people that I think make a lot of money are the people -- now Glenn is closed and Seth is closed -- but they are people who really understand the areas that they're doing. So Glenn does seven to 10 companies, but he really understands the economics. He's just a brilliant, sort of natural industry economist. And he's just naturally good at judging these franchises, almost unconsciously so. And I think that's the thing I would find most impressive. I think Seth (Klarman) has it. I think Glenn Greenberg has it. I think there's some other value -- and, Buffett, obviously also has it.
Gurufocus records his stock and option portfolio. He holds $1.74 billion in 11 stocks and one option (a small call option of US Bank Corp.) Here is the entire stock portfolio:
|Symbol||Number of Shares||Value ($1000)||Percentage (%)||% of Company|
Here is a brief review of the companies:
Lockheed Martin Corp. (LMT)
Lockheed Martin Corp. is engaged in the research, design, development, manufacture and integration of advanced-technology systems, products and services. Lockheed Martin Corp. has a market cap of $30.72 billion; its shares were traded at around $82.19 with a P/E ratio of 10.5 and P/S ratio of 0.7. The dividend yield of Lockheed Martin Corp. stocks is 3%. Lockheed Martin Corp. had an annual average earning growth of 17% over the past 10 years.
Greenberg sold about 1.8 million shares in 4Q09.
Comcast Corp. Special (CMCSK)
Comcast Corporation is involved in the development, management and operation of broadband cable networks, and in the provision of electronic commerce and programming content. Comcast Corp. Special has a market cap of $51.59 billion; its shares were traded at around $17.68 with and P/S ratio of 1.5. The dividend yield of Comcast Corp. Special stocks is 1.5%. Comcast Corp. Special had an annual average earning growth of 14.6% over the past 10 years.
Greenberg sold about 8 million shares in 4Q09.
U.S. Bancorp (USB)
U.S. Bancorp is a financial services holding company. U.S. Bancorp has a market cap of $51.96 billion; its shares were traded at around $27.13 with a P/E ratio of 28.2 and P/S ratio of 2.7. The dividend yield of U.s. Bancorp stocks is 0.8%. U.s. Bancorp had an annual average earning growth of 1.7% over the past 10 years. GuruFocus rated U.s. Bancorp the business predictability rank of 3.5-star.
Greenberg maintained his USB positions in 4Q09 and he also held 104,000 shares of call options.
Ryanair Holdings plc (RYAAY)
Ryanair Holdings provides airline services for passengers for point-to-point trips between Ireland and the United Kingdom with over 100 flights a day. Ryanair Holdings Plc has a market cap of $8.79 billion; its shares were traded at around $29.76 with and P/S ratio of 2.1. Ryanair Holdings Plc had an annual average earning growth of 27.9% over the past 10 years. GuruFocus rated Ryanair Holdings Plc the business predictability rank of 3.5-star.
Greenberg sold about 3.9 million shares of RYAAY in 4Q09.
Laboratory Corp. of America Holdings (LH)
Laboratory Corporation of America Holdings, is one of the largest independent clinical laboratory company's in the United States. Laboratory Corp. Of America Holdings has a market cap of $7.97 billion; its shares were traded at around $76.13 with a P/E ratio of 15.6 and P/S ratio of 1.7. Laboratory Corp. Of America Holdings had an annual average earning growth of 17.6% over the past 10 years.
Greenberg sold 1.5 million shares of LH in 4Q09.
Varian Medical Systems Inc. (VAR)
Varian Medical Systems, Inc., of Palo Alto, California is the world's supplier of equipment and software for treating cancer. Varian Medical Systems Inc. has a market cap of $6.8 billion; its shares were traded at around $54.87 with a P/E ratio of 20.1 and P/S ratio of 3.1. Varian Medical Systems Inc. had an annual average earning growth of 15.5% over the past 10 years. GuruFocus rated Varian Medical Systems Inc. the business predictability rank of 4.5-star.
Greenberg sold 3.2 million shares of VAR in 4Q09.
Dell Inc. (DELL)
Dell Inc. is a provider of products and services required for customers worldwide to build their information-technology and Internet infrastructures. Dell Inc. has a market cap of $30.85 billion; its shares were traded at around $15.76 with a P/E ratio of 16 and P/S ratio of 0.6. Dell Inc. had an annual average earning growth of 4.1% over the past 10 years. GuruFocus rated Dell Inc. the business predictability rank of 2.5-star.
Greenberg sold about 3.7 million shares of DELL in 4Q09.
Precision Castparts Corp. (PCP)
Precision Castparts Corp. is a manufacturer of complex metal components and products. Precision Castparts Corp. has a market cap of $17.84 billion; its shares were traded at around $125.89 with a P/E ratio of 18.7 and P/S ratio of 2.6. The dividend yield of Precision Castparts Corp. stocks is 0.1%. Precision Castparts Corp. had an annual average earning growth of 30.6% over the past 10 years. GuruFocus rated Precision Castparts Corp. the business predictability rank of 2-star.
Greenberg sold 1.6 million shares of PCP in 4Q09.
Waters Corp. (WAT)
Waters Corporation is a holding company which owns only and all of the outstanding common stock of Waters Technologies Corporation, the operating subsidiary. Waters Corp. has a market cap of $6.34 billion; its shares were traded at around $67.73 with a P/E ratio of 19.7 and P/S ratio of 4.2. Waters Corp. had an annual average earning growth of 12.4% over the past 10 years. GuruFocus rated Waters Corp. the business predictability rank of 4-star.
Greenberg sold 1.5 million shares of WAT in 4Q09.
Crosstex Energy Inc. owns and controls the general partner of Crosstex Energy, L. Crosstex Energy Inc. has a market cap of $429.8 million; its shares were traded at around $9.23 with and P/S ratio of 0.3. Crosstex Energy Inc. had an annual average earning growth of 2.8% over the past 5 years.
Greenberg sold 1.2 million shares of XTXI in 4Q09.
Crosstex Energy L.P. Ltd. Partnership (XTEX)
Crosstex Energy, a mid-stream natural gas company, operates over 1,700 miles of pipeline, two processing plants, and 49 natural gas treating plants. Crosstex Energy L.p. Ltd. Partnership In has a market cap of $567 million; its shares were traded at around $11.41 with and P/S ratio of 0.4.
Greenberg sold 0.8 million shares of XTEX in 4Q09.
Glenn Greenberg only owns 11 stocks and he sold some shares of most of them in 4Q09.
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