When I first stumbled across Greenberg, his approach to investing made a lot of sense to me. It was based around the traditional style of value investing, but rather than concentrate on asset values, Greenberg liked to focus on cash flows. This style of investing is widely known and understood today, but when the value investor set up his first firm in 1984 with John Shapiro, it was still a bit of a niche strategy (the firm was renamed Brave Warrior in 2010 when the partners split up).
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Cash is king” data-reactid=”20″>Cash is king
Greenberg liked to try and predict a company’s cash flows, then use a discounted cash flow forecast to project a terminal value. Typically, he would use a double-digit discount rate to provide a conservative estimate of intrinsic value. From here, he would look to buy at a double-digit discount to this conservative estimate.
According to Brave Warrior’s latest 13F filing, which details the equity positions the firm held at the end of March 2020, the value-focused manager took advantage of the market decline in March to increase his holdings of several fundamental positions and add some new stocks to the portfolio.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Portfolio additions” data-reactid=”23″>Portfolio additions
Greenberg’s additions include global hospital operator HCA Healthcare (NYSE:HCA). Greenberg acquired 1.4 million shares in this company during the first quarter of 2020, giving it a 7.2% portfolio weight.
He added 330,000 shares of Facebook (NASDAQ:FB), giving it a 3.2% portfolio weight.
He also added just under 3,000 shares of Marriott International (NASDAQ:MAR).
Most notably, Greenberg also took advantage of the market decline to substantially increase his holding of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B). The value investor increased the holding by nearly 19%, taking it up to 1.74 million shares. This holding is by far the largest in the Brave Warrior portfolio. It now makes up 18.4% of assets under management.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The second-largest holding in the portfolio at the end of the first quarter was Google's parent company Alphabet (NASDAQ:GOOGL). While several other value investors were increasing their position in the search engine giant during the first quarter of 2020, including Seth Klarman (Trades, Portfolio), Greenberg decreased his position by nearly 25%. However, I think the reduction of this position is more likely due to wanting to free up cash for other opportunities.” data-reactid=”28″>The second-largest holding in the portfolio at the end of the first quarter was Google’s parent company Alphabet (NASDAQ:GOOGL). While several other value investors were increasing their position in the search engine giant during the first quarter of 2020, including Seth Klarman (Trades, Portfolio), Greenberg decreased his position by nearly 25%. However, I think the reduction of this position is more likely due to wanting to free up cash for other opportunities.
For example, the guru also increased his third-largest position, Anthem Inc. (NYSE:ANTM), by nearly 40% to 875,000 shares. It now makes up 11.4% of the portfolio, a position worth $200 million.
Brave Warrior also increased its position in banking group JP Morgan Chase (NYSE:JPM). This position now makes up 9.9% of the overall portfolio, making it the fourth-largest holding at the hedge fund.
As well as selling some of his holdings in Alphabet, Greenberg sold nearly half of his holdings in Moody’s Corp (NYSE:MCO) and a third of the Lennar Corp (NYSE:LEN) position.
Disclosure: The author owns shares in Berkshire Hathaway.
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