Originally Posted by
Trip7
I just started value investing last year. Before that I was soley in Index funds and Real Estate with 3% of my money in a "Sandbox" for playing with individual stocks. After extensive research on stocks I jumped into Individual stocks last years and with admitly fortune timing as the Market collapsed and offered me cashflowing businesses at low prices. In 2020 I returned 60%
I have no doubt you did 30% annualized with growth stocks. If you believe that will continue for the next 10 years at current nosebleed valuations good luck. Unless the majority of your portfolio is reasonably valued growth stocks like Google, Facebook and Microsoft history has shown those type of runs that are disconnected from fundamentals end very badly. Time will tell.
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You seem to read a lot about investing. Maybe too much? Everyone, their brother and their pets publish their tried and true method, their valuation models, their fool proof ratio etc. That’s all so complicated. We look for numbers to validate our feelings or something we just read. Conveniently, whomever published the book or article you’re reading can find all the data needed to back up what they sold you.
Im not opposed to reading these types of things for some abstract ideas, but when they narrow it down to something simple like “If XYZ ratio is below this # it’s a buy”, I disregard that.
How is this for value investing; if you invest in a company today, ignoring “valuation” and instead believe it’s product will expand around the world and revolutionize an industry (Tesla comes to mind, often touted as the ultimate overvalued stock) don’t you think today’s price is a value compared to what it is in 10 years?
My problem with looking at “multiples” and “ratios” is they cannot look at the possibility that a company like Tesla will grow car sales, battery sales, solar sales, satellite launch sales, satellite internet sales, car software subscription sales, boring company sales, electrical grid rebuilding sales and so on. Dividing this number by that number just simply cannot take potential into account. Do your value models take into account WHAT these companies are doing with all of that cash? If so, how does that fit into a mathematical equation. To me, what they’re doing with the money is more important than the money itself. Are they investing in technology? Sales? Advertising? Management bonuses?
The only shot we have is investing in companies poised for significant growth. I’m talking 10x and beyond. Sure, I can invest in a paper company with great cash flows but what returns will that give me?
My personal favorite example and holding is Shopify. For the years I’ve held it since IPO, it’s always been “overvalued”. It’s valuation was “rich”. It’s “multiples” were stratospheric. And yet, it’s returned over 20x (at times) for me. Will I give some of that back if I keep holding? Sure. The last two weeks I’ve most definitely given some back, but is that because it’s a bad company or it’s multiples didn’t fit into some Wall Street or CNBC model? No. Just tech not being in Vogue the last couple of weeks. Consider what Shopify does, the size of the addressable market and the vision that the leader has for the company and I’ll take that any day over PE.
Admittedly, I don’t know your situation or age so perhaps what you’re doing is best for you. But from a simple future potential standpoint, if you’ve got 20-30 years to retirement, this is the only true shot a lowly airline pilot like me has at Ed Bastian type fortunes.
Final note; do be sure to keep track of your performance vs a benchmark like the S&P, ultimately it’s the only thing that matters.
whew.