Bruce Greenwald on Lessons Learned from the Financial Crisis

In an interview with Advisor Perspectives, value-investing guru Bruce Greenwald talks about lessons learned from the financial crisis. As a result of the crisis, he has refined his process of risk management.

Here are the takeaways:

1. Never overpay for an investment. Having a margin of safety is critically important.

2. You need to have a reasonable amount of diversification, which Greenwald defines as 20-30 globally diversified positions.

3. Beware of leverage. It’s the fastest way to make a temporary impairment of value into a permanent loss of capital. Many value investors got burned because they invested in financial companies with high amounts of leverage.

4. You must take macro risks into account. The best way to do this is to look at the macro-risk exposure of each of your holdings, for example, how would the position perform in an inflationary environment, what about deflationary?

(Read the entire interview)

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3 thoughts on “Bruce Greenwald on Lessons Learned from the Financial Crisis

  1. Tim

    Great interview, full of investment ideas as well.

    He does not like Buffett's Burlington Northern deal. It will be interesting to see how it pans out.

    thanks for posting

    Reply
  2. Pingback: Sequoia Fund Still Going Strong | GregSpeicher

  3. Bob

    BNSF was a good deal at 75, it was better when it was at 50 and change, but heck, if it’s 100 OK too. Why – because of the high quality of the infrastructure.CAPEX is the functonal equivalent of Alger Hiss, and the oil play is rubbish. Don’t like the multiple decapitate management.

    Credit default swaps fall into the category of unintended consequences, call me a rube but they always stunk to me. Further they undergird the recent passage of Financial Reform Bill or whatever it’s called; how about Chris Dodd’s swansong.

    Regarding the amassing of CDO’s CMO’s and KMAS,- the laisse faire rule Greenspan assumed for market order failed because of asymetrical negotiating positions, political connections and in the case of Merrill, pigs at the trough.

    Which leads me to conclude – do you really care about Warren and Charlie? Too much is made of their success just as too much has been made of Bill Gates or Larry Ellison. Its always the fundamentals.

    When I was young and foolish I had a great broker at a great broker/dealer – who tracked 10 to 20 stocks, had two or three that he always recommended, and left me with this maxim:

    Kid, you can be satisfied or you can be a pig.

    Reply

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