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April 27, 2010

Value Investors Stayed the Course

Catherine New
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Professor Bruce Greenwald and top value investors took part in a panel discussion at Columbia Business School on April 16, 2010. The program was hosted and televised by Bloomberg (watch video online).

In the discussion, Greenwald said the financial crisis validated the principles of sound value investing. “Thank God for the last year. … Value investors stayed the course,” he said. “We did not have a Great Depression, which I don’t think was ever the cards.” Greenwald went on to elaborate about the fundamentals of value investing, saying:

You are always buying future returns when you are buying a stock. The question is how you measure them. When you see a return today that you think you want to buy, the fundamental question is how long is going to last? You can see the birds in the bush, but the question is how many are going to die before you get to eat them? … Value investors have always focused on the permanence of the return. To Ben Graham that was asset production. For a business to be viable, if it needed assets, it had to earn a return on those assets or nobody was going to invest. … That’s why [Graham] focused on assets. But what Buffett taught people is that beyond assets, earnings are sustainable if you have barriers to competition.