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Bruce Greenwald Interview

I recently found an excellent interview with Bruce Greenwald that I recommend reading, especially if you've been following my basics course on value investing. Over the past few weeks I have been taking you through a brief overview of a value investing methodology. In this interview Mr. Greenwald does an excellent job of explaining the necessity of following such a methodology. He sums up value investing into three things; a search process and an understanding of the extent to which markets are inefficient, a "technology" for valuing what you are considering buying, and having discipline and patience.

 

"So I think of value investing as three things. A search strategy, which we talked about, which is where the low P/E, low market to book comes in. But it's not all of it, by any means, even of the search strategy. A valuation strategy. And a discipline approach to taking advantage of the information that your valuation is telling you about and having a default strategy when it's telling you it doesn't look like there's anything there."

 

The beauty of this is that your valuation "technology" will enable you to have the discipline and patience that is required of a value investor. As he says, if you believe in your valuation and the stock you just purchased goes down, then you will buy more! In this way instead of getting caught up in the same behavioral mistakes that the average investor makes, you are taking advantage of a good deal turning into a better one as you cost-average down.

 

Mr. Greenwald also does a great job of explaining the importance of each step in the methodology that I have shown you, as well as the importance of the order in which they are performed.

 

"What you want to do is to have a technology that brings all the available information to bear, so you can cross-correlate the asset values with the earnings-power values, with your judgment about whether there's a franchise here. That if you're going to buy growth, you're absolutely certain that the franchise is there so the growth is going to be valuable... And then, only then, looking at the growth."

 

I highly recommend reading the interview which can be found HERE. Following is a brief biography of Bruce Greenwald as found in the Columbia Business School directory:

 

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.