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Graham and Doddsville - Issue 9 - Spring 2010

Graham and Doddsville - Issue 9 - Spring 2010

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Published by g4nz0
Graham & Doddsville
An investment newsletter from the students of Columbia Business School
Issue IX Inside this issue:
Jeremy Grantham— Graham & Dodd Breakfast Speech Broadridge Financial (BR) Plum Creek Timber (PCL) Bob Bruce p. 2

Spring 2010

“A Brave Concentration on Value” — Glenn Greenberg
Glenn Greenberg is the founder and portfolio manager of Brave Warrior Capital. Previously, Mr. Greenberg ran Chieftain Capital Management, which he founded in 1984. Mr. Greenberg holds an English degree
Graham & Doddsville
An investment newsletter from the students of Columbia Business School
Issue IX Inside this issue:
Jeremy Grantham— Graham & Dodd Breakfast Speech Broadridge Financial (BR) Plum Creek Timber (PCL) Bob Bruce p. 2

Spring 2010

“A Brave Concentration on Value” — Glenn Greenberg
Glenn Greenberg is the founder and portfolio manager of Brave Warrior Capital. Previously, Mr. Greenberg ran Chieftain Capital Management, which he founded in 1984. Mr. Greenberg holds an English degree

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Published by: g4nz0 on May 10, 2012
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I had a knack for figuring outwhich companies were un-dervalued. I was quicklypromoted to what I call‘Money Mismanager.’
(Continued on page 3)
Glenn Greenberg is thefounder and portfoliomanager of Brave War-rior Capital. Previously,Mr. Greenberg ran Chief-tain Capital Manage-ment, which he foundedin 1984. Mr. Greenbergholds an English degreefrom Yale and is a gradu-ate of Columbia BusinessSchool.G&D:
Could you tell us alittle about your background,how you got interested ininvesting, and how you’veevolved over time as an in-vestor?
I was an English majorin college and taught schoolduring the Vietnam War era.I went to business school atthe recommendation of oneof my bosses. When I wasat business school, the onlything that appealed to mewas a portion of one classthat dealt with securityanalysis. It seemed like a lotof fun to study a companyand figure out whether itsstock would be a good in-vestment. I didn’t under-stand what investment bank-ers did. I didn’t think I’d beinterested in being a manage-ment consultant, which at-tracted all the best andbrightest. So I took a job atMorgan Guaranty, now JPMorgan Chase, in their trustand investments department.
A Brave Concentration on Value
” — Glenn Greenberg
Searching for Dirty Gems
” — Kingstown Partners
Mike Blitzer CBS ‘04 andGuy Shanon CBS ’99 arethe Managing Partners of Kingstown Partners, LP,a $285M special situa-tions partnership thathas compounded at17.2% net of fees since itsinception in early 2006,versus negative returnsfor the S&P 500. Thepair also teaches AppliedValue Investing in theHeilbrunn Center at Co-lumbia Business School.G&D:
How do you de-scribe Kingstown’s approachto value investing?
We are an opportun-istic partnership that investsacross the capital structurein a specific set of specialsituation categories. We aredeep-value fundamental ana-lysts, but we try to only look at situations where there issome element of forced orindiscriminate selling. Weneed to know why a securitymay be mispriced beforewanting to dig deeper. Thiscould be something like acorporate spin-off being dis-carded because of an unusualdistribution ratio or a com-pany exiting bankruptcy or abusted convertible bondwhere arbitrage sellers areexiting en masse. In everycase, we have a view on whyan opportunity may exist.We spend our time focusedexclusively on what we think are the pockets of ineffi-ciency in equity and debtmarkets and just try to find ahandful of mispricings eachyear. We manage a moreconcentrated portfolio of 20-25 of these types of situa-tions which tend to be lesscorrelated to the overallmarket. We also require aspecific catalyst or series of 
(Continued on page 20)
Spring 2010Issue IX
Matthew Martinek MBA 2010Clayton WilliamsMBA 2010Garrett JonesMBA 2011Dan KaskawitsMBA 2011
Inside this issue:
 Jeremy Grantham— Graham & DoddBreakfast Speechp. 2Broadridge Financial(BR)
p. 16
Plum Creek Timber(PCL)p. 18Bob Brucep. 30Pershing Square Chal-lengep. 31AVI Class of 2010 p. 32Glenn Greenberg, PortfolioManager - Brave WarriorCapitalContact us at:
Visit us at:
Graham & Doddsville 
An investment newsletter from the students of Columbia Business School
We are pleased to presentyou with Issue IX of 
Graham& Doddsville,
Columbia Busi-ness School’s student-ledinvestment newsletter co-sponsored by the HeilbrunnCenter for Graham & DoddInvesting and the ColumbiaInvestment ManagementAssociation.This issue features an inter-view with Glenn Greenberg,founder and portfolio man-ager at Brave Warrior Capi-tal. Mr. Greenberg outlineshis high concentration, lowturnover investment ap-proach, with a focus ongrowing, high quality com-
Welcome to
Graham & Doddsville 
“The Efficient Market & Rational Expectations”
published as an appendix tohis most recent quarterlyletter and is available on theGMO website.
On value investing, effi-cient markets, and theperil of ignoring bub-bles…
This title was aimed, really,at my number one pet hate,“The Efficient Market and
(Continued on page 26)
On October 7
, 2009, Co-lumbia hosted the 21
an-nual Graham & Doddsvillebreakfast at the Pierre Ho-tel in midtown. Each year,the breakfast brings to-gether students, alumni,faculty, and investment prac-titioners to discuss currentinvestment markets andcelebrate Columbia’s ongo-ing contribution to the valueinvesting discipline.This year, Jeremy Granthamgave his thoughts on thevolatile markets of 2008 and2009, including some sharpcriticism of the commoninterpretation and practiceof “Graham & Dodd” stylevalue investing. The follow-ing are excerpts from hisspeech. A full version of Mr. Grantham’s speech was
Page 2
panies that also offer attrac-tive and defensible free cashflow yields.The issue also features aninterview with two of Co-lumbia’s own Applied ValueInvesting professors, MikeBlitzer and Guy Shanon of Kingstown Partners. Theydiscuss their focus on spe-cial situation investmentsthroughout the capitalstructure.We also aim to offer spe-cific investment ideas thatare relevant today. The cur-rent issue includes two stu-dent investment ideas, in-cluding Broadridge Financial(BR), presented by MattGordon ‘10, Garrett Jones‘09, and Mike Smeets ‘09.The Broadridge pitch wasthe winner of the third an-nual Pershing Square Chal-lenge. We also include ashort recommendation onPlum Creek Timber (PCL),the runner-up from thePershing Square Competi-tion.Please feel free to contactus if you have comments orideas about the newsletteras we continue to refine thispublication for future edi-tions. Enjoy!
 Jeremy Grantham delivering the keynote address at the 2009Graham & Dodd Breakfast.
Pictured: Bruce Greenwald andMarty Whitman at the ColumbiaInvestment Management Con-ference in February.
year, we’d look in the port-folio and say gosh, how arewe going to do 15% or 20%this year with this group of dull investments, but some-how it happened. We had23 great years of investmentperformance, but the last 3were not so hot.The firm broke up at theend of last year, and Istarted Brave Warrior withthe same precepts, andhired some super brightyoung guys. One of themdropped out of college at 19to start a pharmaceuticalcompany, which he is nowin the process of selling.Got the directors, raisedthe capital, got the rights tothe drugs that he wanted tomarket. I thought that withthat kind of motivation and
“That meant noturnarounds, nocrummy businesses, nohighly competitivebusinesses, and no techbusinesses,which we didn’tunderstand. Itwas boring stuff.” 
Page 3Issue IX
Glenn Greenberg
ingenuity, he’s a very crea-tive person who knows howto think about a business. Ithink I’ve built a team of that kind of people.There are five of us: mypartner and I, and threeyounger people. We haveone person who does spe-cial projects research. Wegive him a question that wewant answered, which mayinvolve conducting inter-views or getting documentsother people haven’t both-ered to get. It’s a wholedifferent vantage point onthese investments thatwe’re looking at. Then wehave one fellow who has amore conventional invest-ment background. He’sdone distressed and privateequity, but he loves publiclytraded securities. Verybright and has a similar in-vestment approach to whatI do. So, we have a greatteam.
You have a uniqueapproach to client manage-ment, which allows you tolet your assets compoundorganically rather than fo-cusing on marketing. Howdo you cultivate your rela-tionships with investors?
In the past it was bydelivering outstanding re-sults. When we foundedChieftain, I felt that since mypartner and I were going tobe doing everything, all theresearch and picking stocks,we wanted to spend 100%of our time on that. So wemade up some rules. Num-
(Continued on page 4)
After five years there, I leftto join a small private in-vestment group as a re-search analyst for a verysuccessful investor. I spentfive years crunching hisnumbers and analyzing hisinvestments. One thingthat’s changed a lot is thatwe were much more quali-tative, we didn’t have PCsto do these fabulous, com-plex multi-variable models,but I don’t think we lostanything by not having thatavailable. It forced you tothink more clearly about thequality of the business andwhat would give it legs as aninvestment, as opposed totweaking models and chang-ing assumptions, and worry-ing about the latest datapoint and what that did toyour IRR.After being in the business10 years, I started ChieftainCapital Management in1984, and took with me asmy junior partner JohnShapiro, who was workingwith me at Central Na-tional. We started with $40million, 2/3rds of which wasfamily money. By 2006 wecompounded that to 100xits original value before fees just by concentrated invest-ment in pretty pedestrian,easy to understand busi-nesses that seemed under-valued. That meant noturnarounds, no crummybusinesses, no highly com-petitive businesses, and notech businesses, which wedidn’t understand. It wasboring stuff. Almost every
(Continued from page 1)

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