Glen Greenberg is a relatively unknown value investor, yet his returns over the last two decades have been extraordinary.
“If you are going to be an investor, you have to do the numbers yourself.” – Glenn Greenberg
Glen Greenberg: A Great Value Investor
Greenberg, surprisingly, had no desire to be an investor. He studied English in college and then went on to teach for three years, culminating in a position as a high school administrator. After that, he went to Columbia Business School and then spent five years at J.P. Morgan.
While working at J.P. Morgan, Greenberg was asked to assess a corporation that had land with redwood trees growing on it, which sparked his interest in value investing. The land turned out to be three times the company’s market value.
Greenberg learned from this experience that you don’t have to be a genius to profit from value investing. And this way he ended up being a great value investor.
Let’s delve deep and learn from the value investing tips shared by Glen Greenberg
You don’t have to be a genius to make profit as a value investor
Chieftain Capital Management was established in 1984 by Greenberg and his partner, John Shapiro. Chieftain’s investments grew at a compounded annual growth rate of 25% before fees between 1984 and 2000.
Nearly the same time span, the S & P 500 had a return of about 16%. Annual returns were 18 percent through 2010, after which the firm separated into two companies due to partner conflict. Until 2008, Greenberg had a track record that was on par with, if not better than, Warren Buffett’s.
In what has been described as a personality dispute, he parted from his original co-founder, John Shapiro, in 2009. Shapiro was renamed Chieftain and reintroduced. Greenberg stayed with the previous company but renamed it, Brave Warrior.
Do not initiate a position until you know the company inside out
Greenberg, like other great value investors such as Warren Buffett, seeks value by analyzing the cash flow of the company.
He believes that investors should look for companies with a strong competitive edge so that they can assess their long-term cash flow potential. Investors should then try to purchase at a discount to the estimated cash flow.
However, he advises that they should not hold a position unless they have a thorough understanding of the organization and a strong belief in their ability to succeed.
“Purchase good businesses that are unaffected by new entrants, have increasing profitability and are not at risk of technological disruption”.
Investing is a long-term business, especially for value investors
As a value investor, you should seek “two-inch putts,” or investments that can deliver a high level of return for a low amount of risk.
Every investor should have a strategy that will win in the long run and will not fail. Investors should avoid using a strategy that comes with high rewards and high risks.
Investing is a long-term business and an investor must devise a strategy that will enable them to be a long-term winner.
Do not get bored with extensive studies on companies
He claims that boredom has multiple causes, the first of which is that investors find it too difficult and time-consuming to perform extensive studies on companies in unglamorous industries such as manufacturing, primary materials, and logistics.
Moreover, because contemporary technology has made it easier to enter the stock market, the temptation to trade in and out of positions has increased. “Time-consuming study rarely yields a compelling justification for buying a significant position.
It’s frustrating to study company after company just to discover that the majority are neither truly unique nor undervalued.
It’s also tiresome to hold shares in a good company for a long time. Even if the investment does well, it often feels as if the stock is stagnating or even declining”.
Understand that price does not necessarily equal value
Investors, according to Greenberg, frequently allow their emotions to get the best of them, despite the fact that even the most mechanical and dispassionate investors are still human.
It’s one thing to understand that price does not necessarily equal value; it’s another to sit back and watch one’s portfolio deteriorate.
He believes that because most sensible investors are risk-averse, it’s no surprise that just a small percentage of the investing public has the mental fortitude to succeed at value investing.
Value investors need the strength of character to think and act in ways that are counterintuitive to the crowd, as well as patience to wait for changes that could be years apart – not everyone’s cup of tea.
Buy below intrinsic value and maintain a margin of safety
Investors sometimes get carried away when they witness the huge gains in high-flying growth companies that they can make in a heated bull market.
He points out that they become envious and make the error of forgetting the basic value investing idea of buying below intrinsic value and maintaining a margin of safety.
“The third component, greed, has always skewed investor behavior, but given the development of hedge funds, it is especially prevalent today.” These funds’ investors keep moving from fund to fund, hoping to find the newest hot manager.
Due to the large fees, these managers are enticed to pursue get-rich-quick trading tactics. The more money they make, the more money they attract, and investors have been lured in by the promise of unsustainable profits.
Key Takeaways From This Chapter
- You don’t have to be a genius to profit from value investing or to be a value investor.
- Investors should then try to purchase at a discount to the estimated cash flow.
- A value investor should invest in companies with a longer time horizon.
- It’s also tiresome to hold shares in a good company for a long time.
