You've probably never heard of a value investor called Glenn Greenberg. Once named as 'the next Buffett', Greenberg's returns over the past few decades have been almost second-to-none. His fund, Chieftain Capital Management returned 25% per annum on average, before fees from 1984 to 2000, while the S&P 500 returned 16% per annum on average over the same period. Up until 2008, Greenberg had achieved a record that was as good as, or better, than that of Warren Buffett.
Different approach
Like Buffett, Greenberg wants to buy 'good' businesses, those that are unchallenged by new entrants, have growing earnings and are not likely to be technologically undermined. Additionally, Greenberg sees himself and his partners as owners of a business and its cash flows, so rather than using relative valuation metrics, he values potential investments using discounted cash flow models.
You can find Stockopedia's own discount cash flow calculator here. Typically, when assessing companies using the DCF method, investors require a return of at least 9% to 10%, for blue-chip stocks, in order to compensate them for the risk they are taking. Greenberg on the other hand uses a hurdle rate of 14% to 15%, lowered from 20% to compensate for the current interest rate environment. The higher than average discount rate of 14% to 15% is Greenberg's margin of safety -- in this respect he is similar to many other value investors.
Greenberg is an investor not a trader. He believes that investors should invest looking for businesses with slow, steady rates of growth, not high risk, high reward trades. Companies that return plenty of cash to investors are also favourable.
Alongside the DCF analysis, Greenberg's investing criteria are simple:
- Buy great businesses.
- Buy at low prices, allow for compounding and growth over time.
- Have a clear understanding of the business, don't be caught out by surprises.
- Use simple, methods of analysis, scribbles on a notepad can often prove to be more valuable than computer models.
Portfolio management
Greenberg generally invests upwards of 5% per security and the average number of positions in his portfolio over the years has been around 12. It is not uncommon for Greenberg to devote around 20% of his portfolio to a single security. As of November 2014, Greenberg's top three holdings represented almost 55% of his, and his partners' portfolio. The top five holdings account for 72% of the entire portfolio.
The holdings
Valeant Pharmaceuticals is currently Greenberg's largest holding, accounting for 32%…
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