Bruce Greenwald’s bio from the Columbia Business School’s website.
Professor Bruce C. N. Greenwald holds the Robert Heilbrunn Professorship of Finance and Asset Management at Columbia Business School and is the academic Director of the Heilbrunn Center for Graham & Dodd Investing. Described by the New York Times as “a guru to Wall Street’s gurus,” Greenwald is an authority on value investing with additional expertise in productivity and the economics of information.
Greenwald has been recognized for his outstanding teaching abilities. He has been the recipient of numerous awards, including the Columbia University Presidential Teaching Award which honors the best of Columbia’s teachers for maintaining the University’s longstanding reputation for educational excellence. His classes are consistently oversubscribed, with more than 650 students taking his courses every year in subjects such as Value Investing, Economics of Strategic Behavior, Globalization of Markets, and Strategic Management of Media.
I would like to add that Bruce Greenwald has authored several books. He wrote a phenomenal book on value investing titled Value Investing: From Graham to Buffett and Beyond ,and has written several other books on topics including globalization, competition and media companies.
Bruce Greenwald recently was interviewed by Steve Forbes. Bruce Greenwald discusses a variety of topics including Ford motors, Amazon.com bubble, and bubbles developing in China. Greenwald also discusses discounted cash flow and the folly of using it. Greenwald discusses the future of AT&T, Verizon, and the current state of media companies. Bruce Greenwald discusses over and over the concept of economies of scales.
Here are the following topics Bruce Greenwald discusses in the interview:
True Value Investing
Diseased Vs. Diseased
Growth Invites Competition
Wall Street’s Success
Future Of The Media
Telecoms Of The Future
Apple And Amazon Bubbles
China Hindered By Education
Western Europe’s Lagging
The video runs about 22 minutes.
I could only embed a short segment of the clip here. To see the whole video click here
The full transcript of the interview is available.
Hello, I’m Steve Forbes. Our guest is Bruce Greenwald. Bruce is the director of research at First Eagle Funds and the Robert Heilbrunn Professor of Finance and Asset Management at the Columbia Business School.Bruce is bringing some stock picks to the table. He’s not a big fan of Ford, but he likes niche players in the media business, like the Sci Fi channel.
As for the telecoms, he says the future is uncertain, but one thing is for sure — they really need to play nice with the cable guys in order to survive.
Bruce is also worried about what we call new bubbles, including Amazon.com. We’ll tell you why next on Intelligent Investing.
Steve Forbes: Well, Bruce, good to have you with us.
Bruce Greenwald: It’s a pleasure to be back.
Forbes: You are a classic value investor, but as you’ve pointed out in the past, no one says they’re a non-value investor. And just like everyone says they’re disciplined, until the market changes, everyone says, “Well, at heart, I’m a value investor.” What’s your definition of a true value investor?
Greenwald: Okay, I think there are really two elements, or maybe three, to be honest, that distinguish a true value investor. The first is where you look for opportunities. It’s just what your orientation is towards finding securities that are likely to do better than the market. Because I think the fundamental fact about investing that nobody can ever forget is that whenever you buy a stock thinking it’s going to do to well, somebody else is selling it, thinking it’s going to do badly, and one of you is always wrong. Only in Lake Woebegone can all the managers outperform the market. So you always have to ask the question, “Why am I on the right side of this trade?” And this is a value approach to being on the right side of the trade. And it is now rooted in a lot of work on individual investor psychology. And it is, first, you want to stay away from the lottery ticket stocks.
People in every country have always paid for lottery tickets. They’ve always been crappy investments and they’re paying for the hope and the dream. So you want to stay away from that. Second thing is in life, as in investing, people are overly averse to what’s ugly, disappointing, cheap and you really want to go there, which is the corollary to staying away from the big upside stocks. And I think the third thing that really value investors are aware of is that human beings are constituted not to think in terms of uncertainty. If they think there are weapons of mass destruction in Iraq, they’re sure there are weapons of mass destruction in Iraq. Nobody thinks it’s a 60% chance. If they think it’s a good stock, they think it’s 100% chance that it’s good stock. If they think it’s a bad stock, they think it’s 100% chance it’s a bad stock. What that means is that the good stocks are overbought, and the bad stocks are oversold.
Forbes: So a value investor is not just being squishy by saying 70% chance of rain?
Greenwald: Unfortunately, he’s being accurate because there is never 100% chance of anything. So you want to go where all those factors lead you, which is, you want to look for ugly, disappointing, diseased securities where you have a sense that the disease is more than built into the price, which ultimately means cheap. And that’s the first thing that distinguishes a value investor. The second thing is —
Forbes: So, in essence, you’re saying emotions are your enemy.
Greenwald: Emotions are absolutely your enemy. You want to be a certain kind of mutant who is just completely different in their orientation to what’s an attractive investment for the rest of the market. The second thing is that you want to have even then, when you come to look at these securities, because some of them are terminally ill.
Forbes: Some of them are really diseased.
Greenwald: Right, really diseased. And those you want to avoid. So what you want is, you want a better methodology for figuring out what this security is worth, and that’s where you go back to Ben Graham and David Dodd. So all of the MBAs who are taught to do discounted cash flows, or what is a shorthand for that ratio, or multiple valuations, have been taught what may be a proper thing in theory, but is for three basic reasons a terrible way to value securities in practice. And the first and most fundamental is that when you do a discounted cash flow, you take weighted averages of near term cash flows, which are projections, which are very good information, and distant cash flow projections, which is very bad information, and you add it together. And when you add bad information to good information, you wind up with bad information.
Secondly, they ignore balance sheets. It’s all projected earnings and multiples of earnings. And balance sheets are the most reliable, solid information you have about a company. And the third thing is that if you look at the assumptions that go into a discounted cash flow model, they are profit margins, growth rates far out into the