This is Greenwald's most critical adjustment. Investors must capitalize historical R&D, product development, and customer acquisition costs. If a competitor wants to enter the market, they must spend money to build that same brand recognition and tech stack. Step 2: Earnings Power Value (EPV)
Normalize current earnings, isolate maintenance capex, and capitalize the result. value investing bruce greenwald pdf
Revalue the balance sheet to see what it would cost to build the business today. This is Greenwald's most critical adjustment
This is the floor for any valuation. It’s not just book value; Greenwald focuses on the reproduction cost of a company's assets, or the cost to recreate the business from scratch. The formula is: Asset Value = Reported Operating Income (with adjustments) + Excess Net Assets . This step establishes the minimum value a company should have, independent of its earnings. Step 2: Earnings Power Value (EPV) Normalize current
High customer customer switching costs, long-term contracts, or deep habitual branding that prevents customers from moving to competitors.
Value investing is often associated with Benjamin Graham and Warren Buffett. However, modern value investing was heavily shaped by Bruce Greenwald. Greenwald is a legendary professor at Columbia Business School. He took Graham’s traditional concepts and updated them for the modern economy.
Greenwald adds the cost of training a workforce, acquiring customers, and developing proprietary technology.