Greenwald Investing Process

The links below connect to lecture notes on An Investment Process.  Think through how these notes can help you.  I suggest glancing at them, then reading the books suggested in the first link. Once you have read the two books, come back to these notes. The second link (Gabelli) has a link in the document that will take you to a video of Greenwald’s lecture. Read, listen and then reread his lecture.

http://www.scribd.com/doc/65528340/Greenwald-VI-Process-Foundation     62 pages (1999)

http://www.scribd.com/doc/65530349/Greenwald-2005-IP-Gabelli-in-London  40 pages

http://www.scribd.com/doc/65530485/Principles-of-VI  17 pages

http://www.scribd.com/doc/65530893/Overview-of-VI    24 pages

http://www.scribd.com/doc/65531201/Valuing-Growth-Managing-Risk    35 pages

Let me know if the above is enlightening………..

14 responses to “Greenwald Investing Process

  1. Thank you very much for uploading the very useful documents!

  2. Thank you Jackie:

    Your thoughts, questions, criticisms on the Greenwald material are welcome. I find some but not all of the material helpful. For example, unless you are an industry expert (or hire one), it can be difficult to do reproduction value of assets.
    Good luck.

  3. These PDFs are gold.

    Not to waste time on minutiae, but I’m not following why Greenwald includes/excludes certain things from his two techniques to value the market on pg. 13 of the first PDF.

    Technique #1: S&P dividend yield is 1.5% and LT World GDP growth rate is 5%, so this predicts a 6.5% return. (The S&P P/E doesn’t matter then?)

    Technique #2: S&P E/P = 4% and inflation is 1.5% so this predicts a 5.5% return (why include inflation here when we didn’t above, unless the 5% GDP growth rate was nominal? Why do we now like P/E but don’t care about dividend yield?).

    If I repeat the above calculations using current data I’m getting the above two techniques to average out to 7% for today’s market. That sounds great considering corporate bonds are paying 3.25%. But… the Shiller P/E is predicting S&P returns closer to 2.9% – worst than corporates!

    I’d be interested to know if these market valuation tools are useful on a daily basis or just for identifying periods of extreme pessimism or optimism?

    Thanks again for the great content.

  4. I wonder, did Greenwald ever change his opinion or approach to analyzing Apple since these notes? His analysis certainly seems logical given what we all had to work with in ’99.

  5. I have yet to hear him change his tune. Greenwald doesn’t want to be rich; he wants to be the smartest guy in the room. His ego is huge.

    That said, Apple created its own industry. Genius is tough to predict.

    I place Apple in the too tough pile.

    • Thanks for the reply.

      One more thing (still squeezing good stuff out of these older posts), what is your source for industry research?

      Say I wanted to research Nike and do as Greenwald suggests in these PDFs, computing their market share year by year to see if it’s stable, growing, or volatile. Do you have a go-to place for industry overviews?

      I thought I could use Value Line’s industry composite information at the beginning of each section, but their composite is only for the companies they cover! They peg the 2010 footwear apparel industry revenue at $31B, which is precisely the sum of the revenues of the 11 footwear companies they cover. However, the global footwear business was closer to $195B, and includes important competitors that Value Line leaves out (e.g. Adidas).

      Any leads? Thanks as always.

      • I would go to the company’s web-site and all their competitors and look at investor presentations or in the 10-K on MD&A on the business. Often the industry stats are mentioned there.

        Also, search for footwear magazines and industry rags. If you really dig, you will find it. But start there and you will be pointed in the right direction. Worse case call IR and ask them. SOMEONE will know.

  6. I haven’t contacted Nike (yet) and saw no old S&P volumes on eBay so I’ve been gathering data from where I can.

    Rather than trying to gauge the ENTIRE footwear industry, I decided to just focus on who I thought were the largest competitors in ATHLETIC footwear. While Nike only mentions Adidas & Puma in their 10-K, I know that ASICS and New Balance compete here as well.

    Therefore, I defined my own sub-industry by summing up Nike + Adidas + Puma + ASICS + New Balance annual FOOTWEAR sales (yes Nike has apparel too, but footwear is 2/3 of revenue).

    What I found over the last 5 yrs is that Nike (overwhelmingly the largest) has a very consistent % of these sales. Sometimes 46%, sometimes 48%, but very little change. So NKE is the dominant competitor, enjoys consistently high ROC (~20%), and has stable market share, which should be a sign of barriers to entry. Greenwald insists that great products do not make a sustainable competitive advantage. You must have something that keeps new entrants OUT.

    Now comes the fun part – what exactly is the BtE in the footwear business?! Nike certainly chases low costs by producing everything in China & Vietnam, but so do most of their competitors (interestingly, not New Balance though). I’m sure they have great economies of scale in their costs & distribution network, but they’re not doing it all to undercut the competition on price, like a WMT.

    So the interesting question is, what exactly is it that keeps Nike on top? It’s not proprietary technology & not being the low cost leader. The customer captivity doesn’t come from high switching costs, habits, and/or high search costs. The Nike brand just seems to always be “in fashion”, despite the fact that Value Line says fashion trends change about every 3 years. Perhaps it’s just that customers follow their favorite athletes, and Nike can most afford to sponsor the athletes / teams.

  7. I have not looked at the numbers but I suppose Nike is able to keep customer’s preference via its advertising using the biggest sports star much before other brands started doing it. This way if prices are similar most people would go for Nike unless in certain niches (like running where I think Asics had the preference but don’t quote me on that!!!). The big question is how enduring is this moat when valuing the company… That is still my problem with quality companies (high ROIC and growth).

  8. Like you said Nike has the economies of scale in advertising, being able to sponsor the biggest starts. It is kind of similar to the example Greenwald gave on Intel on his VI book.

  9. I think you should study Nike especially their financial characteristics and link that to where they seem to have structural competitive advantages. Note several books on Nike.

    However, I don’t know enough to answer your question. It is a good one.

    Let me try to fin out and get back to you. Meanwhile do more digging.

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