Bruce GreenwaldCopy Anchor Link

Bruce GreenwaldCopy Anchor Link

Bruce Greenwald is the Columbia Business School professor who built the school's value-investing program into the heir to Graham-and-Doddsville. He is the author of Value Investing: From Graham to Buffett and Beyond and Competition Demystified, and the originator of the earnings-power-value (EPV) framework that structures this corpus's valuation pages. His class notes describe value investing as "a specific kind of investing" for "long-term investors with a particular orientation": you look at a security as "a claim on earnings and assets" and ask what that claim is worth.

The three characteristics of financial marketsCopy Anchor Link

Greenwald's opening lecture grounds value investing in three claims about markets: prices are subject to "significant and capricious movements" that can push them away from intrinsic value; financial assets have "underlying or fundamental economic values that are relatively stable and can be measured"; and buying below value wins over the long run. The third is the margin-of-safety made mechanical — the gap between price and value is the margin, and the entry rule is a fixed discount.

Earnings power value and the three tiersCopy Anchor Link

Greenwald's valuation process splits a business into three values ranked by reliability: asset value (the balance-sheet, reproduction-cost floor), earnings power value (normalized current earnings divided by the cost of capital), and franchise value (growth, the least reliable). The strategic conclusion is that growth is only worth something when a moat exists: growth at a competitive disadvantage destroys value, growth on a level playing field neither creates nor destroys it, and only franchise growth creates value. This is the analytic backbone behind quality-vs-statistical-cheap: asset and earnings-power value can be read off today's books, while franchise value demands a judgment about barriers to entry.

QuotesCopy Anchor Link

• A strategy of buying when prices are 33% to 50% below the calculated intrinsic value will produce superior returns in the long-run. The size of the gap between price and value is the "margin of safety." — Class No. 1, January 22, 2004
• "Prices are subject to significant and capricious movements that can temporarily cause price to diverge from intrinsic value." — Class No. 1, January 22, 2004
• "It is instant recognition–buying a dollar for 40 cents. What is the business worth?" — Class No. 1, January 22, 2004

Evidence and the rejection of the efficient marketCopy Anchor Link

Greenwald's first class marshals the empirical case against efficient-market-hypothesis: "the markets are not efficient" with "overwhelming evidence" back to 1860, "70% of professional investors under perform", and "The statistical approaches using value criteria automatically beat the market by 3%-5%." The lineage argument is his coin-flippers: the disproportionate number of successful investors who all came from one "intellectual village" — Graham-and-Doddsville — the tradition running from benjamin-graham through warren-buffett and charlie-munger.

See alsoCopy Anchor Link

• benjamin-graham and security-analysis — the founding texts Greenwald teaches from
• intrinsic-value and margin-of-safety — the two variables his process is built on
• moats — the competitive-advantage judgment that licenses franchise value
• circle-of-competence — the first filter in his search process

Investment philosophyCopy Anchor Link

The compiled, source-grounded version of this investor's beliefs lives at investment philosophy.

SourcesCopy Anchor Link

• investor-letters/BruceGreenwald/Letters-Markdown/Class No. 1 On Value Investing - An Overview (hedgefundalpha).md
• investor-letters/BruceGreenwald/Letters-Markdown/EPV slides - transcription (pdf4pro mirror).md