Columbia’s Bruce Greenwald on Value Investing

When Columbia professor Bruce Greenwald first arrived at the university, value investing wasn’t terribly popular, but he was convinced it was a much better approach. This according to a recent interview with Barron’s.

Here are some highlights from the interview:

  • “Specialization is an old and honorable Graham and Dodd tradition.” Greenwald references successful value investor Mario Gabelli, arguing how his specialties have served him well. “When you start out,” he says, “you want to have an industry focus.” He says this is the advice he gives his students.
  • Value investing is about more than buying cheap stocks, according to Greenwald. “People have always shied away from ugly diseased opportunities. So, you can take advantage of their loss aversion.”
  • “There is a fundamental stupidity about discounted cash flow valuations,” says Greenwald. He advocates looking at a firm’s balance sheet which, he argues, “doesn’t project anything.”
  • Even though passive investing has become extremely popular and is endorsed by Warren Buffett, Greenwald says that “even with this trend, 70% of people are doing active investing. And passive is not so passive. These guys jigger the models all the time. “
  • Today, Greenwald says, the best way to find value is to take advantage of a trend that isn’t well understood.
  • Globalization, says Greenwald, “is finished. Trade is falling. All the production will come back to the U.S., but none of the jobs.”
  • The best value investors, in Greenwald’s opinion, are Buffett, Seth Klarman (Baupost), Howard Marks (Oaktree) and Mitch Julis (Canyon Partners). “They are very disciplined,” he says.