This is part II of the value investing seminar conducted by Bruce Greenwald. Part I can be found here.
I will give a brief bio about Bruce Greenwald to those unfamiliar with him.
Bruce Greenwald is director of research at First Eagle Funds. He is also the Robert Heilbrunn Professor of Finance and Asset Management at the Columbia Business School. Greenwald is academic director of the Heilbrunn Center for Graham & Dodd Investing. He received the Columbia University Presidential Teaching Award. More than 650 students take his courses every year in subjects including value investing, economics of strategic behavior, globalization of markets and strategic management of media.
In this segment Dr. Greenwald argues how cheap, obscure and ugly stocks outperform the expensive and glamorous stocks. He states there is enough statistical evidence which shows that over the long term value wins. He advises people to look at stocks which have not underperformed the market for months, but for several years. These are stocks that have really disappointed the investor, and this situation creates an extremely good bargain. Greenwald states that you are not looking for stocks down 30% in a month, you must hunt among stocks that have been disappointing for at least two years.
Not every value can be measured and therefore investors must develop a circle of competence and try to find out where their advantage lies. They must develop a niche strategy within the value which gives them the advantage. They must look for stocks which are not widely followed.
Regarding valuation methods, Greenwald advises investors to avoid recklessly using complicated DCF models which involves combining the bad information with good information, and ultimately the bad information dominates. Instead of projecting growth rates investors must try to ascertain the viability of the industry. For industries which are not viable one must consider the liquidation value. For a viable industry with no competitive advantages a reproduction value of the assets would be a more reliable method of valuation. For companies that are viable and have a moat, the franchise value will be a more correct estimate of value.
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com
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