More than 400 online attendees gleaned investing wisdom from Professors Bruce Greenwald and Tano Santos during the Columbia Business School webinar “Past, Present, and Future of Value Investing” on Monday, February 8.
Greenwald, the Robert Heilbrunn Professor of Finance and Asset Management and director of the Heilbrunn Center for Graham and Dodd Investing, has been called the “guru to Wall Street’s gurus” by the New York Times and has collaborated closely with fellow Columbia professor and famed economist Joseph Stiglitz.
During the webinar discussion, moderated by Tano Santos, the David L. and Elsie M. Dodd Professor of Finance and Heilbrunn Center co-director, Greenwald stressed the School’s important position as the birthplace of value investing, saying that there was no system in place to evaluate companies prior to Professor Benjamin Graham’s Security Analysis (1934).
“Business schools are really responsible for professionalizing management,” Greenwald said. “In the face of volatility, people will overestimate how bad it’s going to be. You’ve got to be patient. Your process of investing has to be systematic.”
But by 1982, apart from a few investors like Warren Buffett ’51 — who was a student of Graham and Professor David Dodd — value investing had disappeared from the business school scene, replaced by the market efficiency theory. The latter reflects the idea that existing share prices always incorporate and reflect all relevant information. But when Greenwald arrived from Harvard to chair the Heilbrunn Center in 1991 and attended a value-investing lecture, it was a light-bulb moment. “It was then that I realized that these guys were right,” he said. “This is a better way of doing things.” He started the School’s value-investing program shortly after.
Greenwald said that when evaluating a company’s worth, the single most important factor is who’s at the helm. “Management is massively important. Management makes an enormous difference,” he said. But that doesn’t mean the concept of “good management” is universal — Walmart, for example, is known for strong local management but hasn’t proven to be a scalable model overseas. “You’ve got to get over the idea that there’s a unilateral good management.”
In addition, Greenwald said investors are able to distinguish the localization of markets by examining a company’s current manufacturing situation. Having local market distribution is more important than cheaper prices, for example, because people want local technical support. And knowledge of local industries is particularly important in helping investors to specialize, a crucial skill for future successful value investors. He also noted that while new markets may emerge, such as the one inhabited by companies like Uber, basic human nature and the instinct to create investment opportunities hasn’t changed.
“Until human beings grow a third leg, stick with value investing — and specialize,” said Greenwald. Forget trying to predict the future, though — and be in the game for the long haul, both to realize a growing company’s potential and to ride out market fluctuations and recessions. “In a growth company, it is necessarily the case that the growth is far away in the future,” Greenwald said. “You’ve just got to be patient.”