I recently came across a video I thought would be of interest to the readers. I found a recent video interview with guru value investor Bruce Greenwald. Bruce Greenwald is one of my favorite value gurus. He is the author of Value Investing: From Graham to Buffett and Beyond which is a superb book on value investing. Greenwald gives a detailed analysis of Value investing and how to value assets on balance sheets. The book is required reading for guru Joel Greenblatt’s class in Columbia business school.
(As a side note, I wrote an article several months ago titled What Is Value Investing where I explained my views on what value investing is. I hope to soon follow up that article with another article on value investing from a different perspective based on Greenwald’s book.)
Greenwald has written several other excellent books on business topics. In addition to being a great author, Greenwald is a Professor at Columbia University’s Graduate school of Business, and Director of Research at First Eagle Funds a family of value oriented mutual fund with a phenomenal long term record. Greenwald was described by the NY Times as “a guru to Wall Street’s gurus”.
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Greenwald was interviewed on CNBC by Becky Quick on November 16, 2009. Greenwald describes the simple version of value investing is “buying something worth $1.00 for $0.50”. However, he describes this as an inaccurate description of value investing, because every investor thinks they are buying a stock for less than its true value. He says value investing is looking for ugly, cheap stocks. These stocks have historically significantly outperformed the market. He states that if you look at a stock and it seems ugly that is what is a value you stock, however if you look at a stock and think it will make you rich (what comes to my mind is Google , apple and other tech stocks) that is not a value stock. The stock looks to “have a disease”.
However you must dig deeper and see if it really does have a disease. For example, American Express looked ugly and diseased at $10.00 a share; however it was not really diseased if you examined the stock carefully.
He states there is no magic number to look for. Earnings can disappear, however the balance sheet and assets, and American Express’s stock balance sheet revealed the company was healthy even at $10 a share.
Greenwald states that in the past many investors have claimed value investing is over. This happened in 1999, and this also happened again in 2008. He remarks that value investors made mistakes in 2008 because they relied too much on profits of financial institutions and did not look at the assets.
The full video below: