Edgar Wachenheim III - one of those who beat the market

It's hard to reach the investment top, but it's even harder to stay there. Many investors are able to achieve high rates of return within a year. Few can consistently beat the market. Edgar Wachenheim III is one of those investors who can boast of a long period of achieving very high rates of return. Good investment results allowed to collect large assets under management. In mid-2020, Greenhaven had $6,7 billion in assets under management. Edgar Wachenheim is also the author of a book on investing: "Common Stocks and Common Sense"which was released in 2016. The hero of today's article is a supporter of a fundamental approach to investing. So this is another example of an investor who is able to beat the market thanks to investing in value and a long investment horizon.

Between 1990 and 2014, Edgar Wachenheim's average annual return on investment exceeded 18% per year.

Youth and the beginning of a career

He was born in 1937 in New York City to Edgar Wachenheim Jr. and Betty Lewis Wachenheim. Edgar Wachenheim III spent his youth in New Rochelle, New York. Parents took care of the education of their son. Thanks to this, young Edgar was able to study in one of the best schools in New York. In 1959 he graduated from Williams College. After graduating from college, he started working at IBM. It is worth mentioning that Edgar studied for two years at MIT (Massachusetts Institute of Technology). In the years 1964 - 1966 he attended Harvard Business School where he earned a Master of Business Administration (MBA). The completed education and MBA degree allowed Edgar to get a job at Goldman Sachs as a securities analyst. Thanks to this, young Wachenheim began gaining experience and knowledge on the American stock market. This helped him further develop his career.

Way to the top

The experience of working in the analysis department of one of the most famous investment banks and the "network of contacts" allowed Edgar to get working in the investment department at Central National - Gottesman (CNG). The “network” was his father-in-law, Ira David Wallah, who was CEO of Gottesman & Company (the parent company of CNG). Edgar's superior was Arthur Ross. In 1979, Arthur Ross retired, allowing Edgar to become head of the investment department.

In 1987, the investment activity was separated from CNG (the so-called spin-off). The new entity took the name Greenhaven Associates. In the first years, Greenhaven invested only funds belonging to CNG and the Wachenheim family. Over time, the strategy was changed and capital was raised from outside investors. Greenhaven targeted wealthy clients, university endowments and non-profit organizations. Such a structure of clients made it possible to invest funds for the long term without worrying that temporary drops on the stock exchange would scare the fund's clients.

Time to reap the fruits of labor

The 1991s were a period of rapid asset growth. The reason was the payments made by new and existing customers as well as the boom on the stock market. In 300, assets under management totaled $1 million. Seven years later, AUM (Assets Under Management) rose to $2004 billion. The development of the fund was not hindered by the years of bear market in technology companies after the dotcom bank collapsed. In 2,7, assets under management amounted to $1990 billion. The fund's successful investment policy also contributed to the rapid growth of assets. Very good financial results helped to increase the scale of the fund's operations. It is worth mentioning that between 2014 and 18, Edgar Wachenheim's average annual rate of return on investment exceeded XNUMX% per year.

Common Stocks and Common Sense

Wachenheim is the author of a book published in April 2016 by Wiley. The name of the book is "Common Stocks and Common Sense: The Strategies, Analyzes, Decisions, and Emotions of a Particularly Successful Value Investor”. The book is a treasure trove of knowledge for every novice investor who wants to invest based on fundamental analysis. The author of the book explains what his approach is value investing. The book also includes many real-world examples of Edgar's investments.

According to Edgar, it is worth looking for companies that are valued by the market below their intrinsic value. At the same time, it is important that the company has a "good" business model so that the risk of losing money on investments in the long term is minimal. Thanks to this, even if Wachenheim was wrong, there was a small chance that the investment would end in a loss of money. At the same time, Edgar aims for an average annual return on investment of 15%-20%. For Wachenheim, it is important to maintain a balance between the expected rate of return on investment and the risk of loss. For this reason, he prefers to invest in businesses that have already proven their strength instead of focusing on searching "next Microsoft".

What does Edgar Wachenheim invest in?

Due to the fact that Greenhaven Associates has assets over $100 million, it must submit to SEC documents regarding the structure of assets. This gives individual investors a "cheat sheet" in which a person who has been able to beat the market for many years invests. Of course, past gains are no guarantee of past gains. What's more, basing your investments "blindly believing" in your guru can end in disaster. This is because each investor has a different pain threshold. Edgar Wachenheim knows why he invested in a particular company. A retail investor just following Edgar is unlikely to have done a thorough review of the business model of companies and their strengths and weaknesses.

For this reason we do not recommend investing in companies purchased by Greenhaven Associates without analyzing them first (in fundamental or technical terms - depending on the reader's preferences). We list the largest positions only as a curiosity. The data is as at December 31.12.2022, XNUMX. So, the composition of the wallet may already be outdated.

• Lennar - 14,62%
• Goldman Sachs - 13,62%
• JP Morgan Chase - 10,60%
• General Motors – 10,01%
• Whirlpool - 8,03%

As you can see, the portfolio is very concentrated. The top 5 positions account for 56,88% of the Greenhaven Associates portfolio. These companies are briefly described below.

lennar

The company was founded in 1954 and is headquartered in Miami, Florida. It is a developer that operates in the United States under the Lennar brand. Undertaking  divided its activities into the following segments:

• Homebuilding East,
• Homebuilding Central,
• homebuilding texas,
• Homebuilding West,
• financial services,
• multifamily,
• LennarOther.

Lennar deals with the construction of single-family houses or terraced houses. The company is also active in the management of multi-family buildings. In addition, Lennar deals with arranging financing for the purchase of real estate, real estate insurance and securitization of mortgage loans.

Source: own study

Lennar chart, W1 interval. Source: xNUMX XTB.

Goldman Sachs

Goldman Sachs is the name that most people who invest in the stock market associate with. The bank was founded in 1869. Its current headquarters are in New York. It is a financial institution that provides many services. The company divides its activities into four segments:

• Investment Banking,
• Global Markets,
• asset management,
• Wealth Management.

Investment banking concerns the provision of strategic advisory services (acquisitions, restructuring, spin-offs, etc.). In the Global Markets segment, Goldman Sachs acts as an intermediary in the execution of client orders on the cash market and derivatives. In addition, Goldman organizes financing of the purchase of shares, clearing services and a custody offer. In the case of the Asset Management segment, Goldman offers asset management for clients in various parts of the financial market. The financial institution enables its clients to gain exposure to the stock, bond, hedge fund, private equity, real estate, currency and commodity markets. The last segment (Consumer & Wealth Management) comprises advisory services for affluent clients. It is e.g. financial planning, investment management, Private Banking services and offering deposit and lending services.

Source: own study

Goldman Sachs chart, interval W1. Source: xNUMX XTB.

JP Morgan Chase

JP Morgan is one of the most important banks in the United States. It has over 3,7 trillion assets and nearly $300 billion in equity. The bank's activity can be divided into 4 segments:

• Consumer & Community Banking (CCB),
• Corporate & Community Bank (CIB),
• Commercial Banking (CB),
• Asset & Wealth Management (AMW).

The CCB segment offers loans, advances, deposits, mortgage products, car loans, etc. to individual customers. This segment includes an offer for owners of very small enterprises. The CIB segment includes a corporate offer, e.g. advice on ensuring debt financing or assistance in organizing a share issue offer. In addition, in CIB, the bank provides financing for foreign projects or a brokerage offer. The Commercial Banking (CB) segment includes services for enterprises (small, medium and large). In addition, customers in this segment include non-profit organizations and local government and local government agencies. The offer includes classic banking services (financing and deposits) as well as payment and investment services. The AWM segment is an offer related to the management of assets and clients' assets.

Source: own study

JP Morgan Chase Chart, W1 interval. Source: xNUMX XTB.

General Motors

It is one of the symbols of the US auto industry. The company was founded in 1908. Its current headquarters is in Detroit, Michigan. GM designs, builds and sells cars, trucks and auto parts. It also provides services sold in the subscription model. In addition, the company also has a department offering financing for the purchase of vehicles or an insurance offer (GM Financial). General Motors also has a wide portfolio of car brands, which include: Buick,Cadillac,Chevrolet,GMC,Baojun or wuling. GM cars also integrate with external software, e.g. with Google Voice Assistant or Amazon Alexa.

Source: own study

General Motors chart, W1 interval. Source: xNUMX XTB.

Whirpool

It is an American company that was founded in 1911. Its headquarters are in Benton Harbor, Michigan. Whirpool manufactures home appliances. The most famous products of the company are refrigerators, freezers, washing machines, cookers and dishwashers. In addition, the company offers small appliances for the home. Whirpool has a strong portfolio of brands including: Whirpool, Maytag, KitchenAid, JennAir, Indesit and Eslabon de Lujo.

Source: own study

Whirpool chart, interval W1. Source: xNUMX XTB.

Summation

Edgar Wachenheim proved that you can achieve a rate of return above the market average for many years. It helped me achieve these results iron consistency in the selection of companies and long-term approach to investing. For Edgar, the most important thing is to choose good quality companies and not to overpay for them. For this investor, it is important that in the long term the risk of losing money on the investment is minimal. Of course, that doesn't mean you're not willing to take risks. Achieving an average annual rate of return of 18% is not easy and requires extraordinary possession "investment nose". It is thanks to iron discipline and a great investment strategy that Edgar Wachenheim has achieved an above-average rate of return and manages several billion dollars in assets.