Bruce Greenwald: How To Significantly Improve Your Value Investing Strategy

Bruce Greenwald: How To Significantly Improve Your Value Investing Strategy
<a href="">FirmBee</a> / Pixabay

Last year Bruce Greenwald did a great interview with Leslie Norton at Barron’s in which he discussed his ‘spin’ on value investing and how it can significantly improve your results.

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Here is an excerpt from that interview:

ValueWalk’s March 2021 Hedge Fund Update: Klarman, Loeb, Reddit And Much More

Nestle Dan Loeb Daniel Loeb third point capital hedge fund manager activist investor poison pen activism Yahoo corporate governance famous investorsWelcome to our latest issue of issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Seth Klarman and Dan Loeb's investment in Intel, losses and profits from Reddit's frenzy, and an analysis of hedge fund pay. Q4 Read More

Norton: Isn’t value investing about buying cheap stocks?

Greenwald: There’s a Graham and Dodd overlay that goes by the name of value investing, which is this idea that you will do much better with ugly diseased stocks than glamorous stocks. People have always shied away from ugly diseased opportunities. So you can take advantage of their loss aversion. What amplifies this is that people think they know much more than they do. The whole discourse about stocks is not “this is a good stock with a 65% probability” [of success]. It’s “this is a good stock for sure,” or “this is a piece of crap.” That’s just not the way reality is. It exaggerates the value of glamorous stocks and radically and consistently undervalues diseased stocks.

Norton: What’s the Bruce Greenwald spin [on value investing]?

Greenwald: Let’s start with having a better value approach. If everybody else is just doing ratio valuations, I’m not going to do better than them. Many business-school graduates try to do discounted cash flows. They estimate cash flows for five or six years, then do a terminal cash flow on a terminal growth rate and a terminal cost of capital and get a terminal value. They do a lot of variations on the assumptions and think they know what’s going on. But they never look at the balance sheet. There is a fundamental stupidity about discounted-cash-flow valuations. Depending on what you plug into the equation, you can get widely disparate multiples. You are combining very good information, your estimate of near-term cash flow, with very bad information, your estimate of distant cash flow. When you add bad information to good information, bad dominates.

We start with the balance sheet, which doesn’t project anything. If it’s a nonviable industry, I can make assumptions about liquidation value, or if it’s viable, about how the assets can be reproduced in the most efficient possible way.


You can find the entire interview at Barron’s here.

Article by Johnny Hopkins, The Acquirer's Multiple

Previous article Galaxy Note 9 To Launch Without The Optical Fingerprint Reader
Next article New Android Malware Hijacks Phone To Farm Monero
The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

No posts to display