Value Investing

Graham & Doddsville Spring 2018 newsletter – A Final Lesson: Bruce Greenwald & Mark Cooper

Graham & Doddsville Spring 2018 newsletter.

Professor Bruce C. N. Greenwald, who holds the Robert Heilbrunn Professorship of Finance and Asset Management at Columbia Business School and is the Academic Co-Director of the Heilbrunn Center for Graham & Dodd Investing, is set to retire from Columbia at the end of the 2017-18 academic year. 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.

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Greenwald has been recognized for his outstanding teaching abilities. He has been the recipient of numerous awards, including the Business School’s Lifetime Achievement Award and 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.

Since 2007, Greenwald has served as Director of Research, and currently Senior Advisor, for First Eagle Investment Management. In addition, he consults worldwide on a variety of issues concerning capital markets, business strategy, corporate finance, and labor performance.

Greenwald is the author of several books including Competition Demystified: A Radically Simplified Approach to Business Strategy (with Judd Kahn, Putnam Penguin, 2005), Value Investing: From Graham to Buffett and Beyond (with Judd Kahn, et al, Wiley, 2001), The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies (with Jonathan A. Knee and Ava Seave, Penguin, 2009) and Adverse Selection in the Labor Market (Garland Press, 1980).

Greenwald received a B.S. and a Ph.D. from the Massachusetts Institute of Technology and an M.P.A. and M.S. from Princeton University.

Mark Cooper ’02, a co-portfolio manager on the International Small Cap Value strategy at First Eagle Investment Management, is one of Greenwald’s former students and current collaborators. Mark joined First Eagle’s Global Value team in May 2014. He is also a senior research analyst covering surface transportation and logistics, oilfield services, and automobiles. Prior to joining the firm, Mark had both research analyst and portfolio management responsibilities covering stocks globally at PIMCO. Before PIMCO, he was a partner and portfolio manager at Omega Advisors, where his research focused on industrials, basic materials, commodities and energy. Mark's past experience also included time at Pequot Capital as a research analyst and J.P. Morgan as a portfolio manager in fixed income, commodities, and currency derivatives. Additionally, since 2004, he has been an adjunct professor of Applied Value Investing at the the Heilbrunn Center for
Graham & Dodd Investing at Columbia Business School.

Mark has a BS from MIT and an MBA from Columbia Business School, where he completed the value investing program. He is a former US Army officer. Mark holds the Chartered Financial Analyst (CFA) designation.

Graham & Doddsville (G&D): Mark, could you start by introducing yourself, including how you first interacted with Professor Greenwald?

Mark Cooper (MC): I’ve been at First Eagle for the last four years. I co-manage an international small-cap strategy with Manish Gupta ’07. I also have senior analyst responsibilities on a few sectors, including oilfield services, surface transportation, logistics, and autos.

I met Bruce 17 years ago. We hit it off really well, maybe because we have two things in common: We were both MIT undergrads, and we both jumped out of airplanes in the Army. Bruce hired me as a teaching assistant for Economics of Strategic Behavior and Value Investing in 2002 when I was at Columbia Business School. After graduation, Bruce and I stayed in close contact and would meet often to discuss ideas. In 2004, right before the semester began, he had an adjunct professor back out so he needed someone to teach Applied Value Investing. Bruce asked Eddie Ramsden ’03, Artie Williams ’02, and me to co-teach the class.

After graduating from Columbia, I worked at a few well-known places, including some with Columbia-affiliated people. I went to work at Pequot Capital for Art Samberg ’67, where I was an equity analyst, primarily in the industrials sector. I then spent five years at Omega Advisors working for Lee Cooperman ’67, where I was a partner and portfolio manager focusing on industrials, materials and energy. After Omega, I spent four years at PIMCO helping develop an equity business. I joined First Eagle in 2014.

Bruce Greenwald (BG): What did you do before you came to Columbia?

MC: After college at MIT and a brief stint on active duty in the US Army, I spent eight years at J.P. Morgan as a portfolio manager in fixed income, currencies and commodities.

G&D: How has your investment philosophy evolved over the years?

MC: Many people who become investors after graduation think they know exactly what type of investor they are, but, over time, many of them find out they’re probably a little bit different once they become professional investors. They are influenced by their bosses, colleagues, and mentors. I’d say I am no different in this regard. I’ve tried to adapt to the environment I was in to do the very best for our investors given the various constraints. In the hedge fund world, we’re probably a little bit more focused on December 31st. So, even though you might want to take a long-term view, due to the nature of the business, you’re likely to be more focused on the end of the year, which tends to shorten your time horizon a bit.

Over the years, I’ve been fortunate to work with and learn from many great people such as Matt McLennan, Kimball Brooker, and Manish Gupta at First Eagle, who are more philosophically aligned with my temperament. I think that all of us, as we learn who we are, are trying to fit who we are as an investor with our boss and our clients. We set ourselves up for the most success when we get most of those stars aligned. I think Seth Klarman put it best when he said, “You get the clients you deserve.”

That said, my basic value philosophy hasn’t changed much since my days at Columbia. Bruce instilled a great discipline of focusing on competitive advantage, and concentrating on that has been a major benefit to my career and to hundreds if not thousands of others. Bruce has made everyone whom he’s interacted with a little smarter through his probing questions and keen insight.

G&D: Did your desire to change asset classes lead you to Columbia or is that something that happened while at Columbia?

MC: No, it led me to Columbia. I had already made the decision to become an equity investor. I read The Intelligent Investor when I was in my Army officer training in the fall of 1991, and I had been investing in stocks since I was a teenager. In my opinion, I made a pretty simple decision after asking myself, “Where do I think I can get the best education to become a value investor?” Columbia was actually the only place I applied to for business school.

BG: I think there are areas in which Mark is absolutely exceptional, and where I’ve learned a tremendous amount from him. When you think of the stages of an investment process, Mark did not have an issue with search strategy, because he is value oriented. And he had industry specialties from the beginning. By partnering with Manish Gupta, he has added industry specializations. Manish was a tech analyst, and Mark was a generalist analyst who had prior periods of specialization.

Mark had a leg up in what I’m trying to teach you guys, which is to not try to do everything. He was always much more sophisticated than just slapping a ratio on things. He was really interested in the quality of a business and how returns would look going forward.

What Mark is exceptional at, first, is in identifying the key issues and managing his research time. One of Mark’s real contributions is his willingness to say, “[Forget] what the world believes, which is clearly wrong.”

Second, Mark is very good at local information. He would read the local newspapers of places where companies that he was looking at were headquartered. He always would read the industry rags for the industries in which he was concerned. Most people sit in New York and talk to analysts in New York, but they’re not interested in an area where there’s a lot of local information.
The third thing that he understood is that research is a lifetime process—that ultimately you become a specialist in companies that you’ve studied before. You get better and better at it because you’ve seen the managements involved and how they react to different conditions and you’ve seen the industry evolve and react to global competition.

Last, he did something that’s very hard for people to do. I once gave a speech in Japan about why Japan has gone off the rails since 1990. There are these six value investors who show up at the speech and asked me to talk not about the Japanese macroeconomic environment, but about companies and value opportunities in Japan.

Now, a crucial issue for all Japanese companies is what they're going to do with your money. There are four main management skills: efficient operation, efficient financing, intelligent expansion to take advantage of competitive advantages, and human resource planning. Japanese management is most efficient in giving you your money back. They’re not measured by expansion because they’ll grow wherever they think they can export.

These six investors had been in Japan for 30 years looking at small- and medium-sized companies. They’ve learned about the managements of those companies from a Western perspective. It's incredible what they know. They have non-overlapping knowledge and meet often to share their knowledge.

I agreed to get breakfast with them. Every single one of them knows Mark because Mark had exchanged information with them about US industrial companies in the same categories of their Japanese expertise. Mark understood the value of cooperation where you couldn’t get the local knowledge yourself. I was impressed with that. I thought, “That’s the right way to do business.” There are two things you have to bring to the table with such networking. One is a willingness to listen and find the local experts. The other is having something to trade, which means you need to have some kind of local knowledge yourself.

I think those four topics—what’s the variant perception, where is the local knowledge that nobody else is carefully looking at, how can you accumulate and build your knowledge over time, and how can you take advantage of a network—are areas of actual research practice that are critically important.

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