One of the many institutional investors I like to keep an eye on is Glenn Greenberg (Trades, Portfolio). I first came across Greenberg several years ago when writing a profile about him for another investment website, and have been interested in his process ever since.
Greenberg first started managing money in 1984, when he founded Chieftain Capital Management with his partner, John Shapiro. Greenberg and Shapiro employed a traditional value strategy, looking for undervalued equities on a cash basis.
There were, however, two primary differences between the investment strategy Chieftain employed and that the rest of the industry used.
A different strategy
First of all, as Greenberg described in a lecture at Columbia in March 2006, Chieftain originally set out using a discount rate of 20% when adjusting cash flows, although they later lowered this to 14% to 15%.
By using this higher-than-average discount rate, the partners hoped to achieve a robust margin of safety between price and value, as prescribed by Benjamin Graham in "The Intelligent Investor."
As well as this high hurdle rate, the duo never made an investment unless they were willing to put around 5% of client assets into it. Greenberg later went on to describe his strategy as looking for what he called "two-inch putts," investments that could provide a high level of return for a low level of risk. The quality of the business is also important.
This strategy certainly worked. From 1984 through 2000, Chieftain achieved a compounded annual growth rate of 25% on its investments before fees. The S&P 500 achieved a return of more than 16% over the same period. Annual returns through 2010 were 18%. These returns put Greenberg on the same level as Warren Buffett (Trades, Portfolio).
Now, I should point out that Greenberg does not have a clean slate. He was one of the many investors who was caught off guard by Valeant Pharmaceuticals (now Bausch Health Companies Inc. BHC), which turned out to be the biggest mistake of his career. Nevertheless, I believe his investment strategy of finding high-quality, cash-generative companies with a low level of risk and then aggressively building a concentrated position does have its merits. With this being the case, I usually keep an eye on the stocks the guru has in his portfolio.
Greenberg holdings
According to data supplied by Securities and Exchange Commission filings, at the end of the first quarter of 2019, the largest position in Greenberg's Brave Warrior Advisors portfolio was Google parent company Alphabet Inc. GOOG. The firm owned around 315,000 shares of the company at the end of the quarter, making up 18.6% of the portfolio.
The second-largest holding was JPMorgan Chase & Co. JPM, making up 10.5% of the $2 billion portfolio. Greenberg increased his holdings of both of these companies by a few percentage points during the three months ended in March.
Greenberg didn't establish any new equity positions during the first quarter, but he did substantially increase his interest in Antero Midstream Corp. AM. In fact, he increased the number of shares he holds in the business by 600% to 626,000. The position now has a 0.43% portfolio weight.
At first glance, this looks as if it could be a traditional Greenberg play. Antero appears to be the general partner for Antero Midstream LLP, a company involved in the business of gathering and processing water. Because it does not operate the assets of the partnership, all this company does is collect a fee and then pass the cash on to shareholders via a dividend. Last year, the stock supported a dividend yield of 5.8%. Wall Street believes it will hit 9.8% in 2019.
The stock doesn't look particularly cheap, trading at a price to tangible book ratio of 2.8 and forward price-earnings ratio of 12.5, but it appears Greenberg is attracted to the business' cash flows, so it could be worth taking a closer look.
Disclosure: The author owns no stocks mentioned.
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