What are your least favorite investing quotes?

[merkhet]

"Bulls make money. Bears make money. Pigs get slaughtered."

[merkhet]

I think they are very very different. The people who are good at picking deep value microcaps will not be good at analyzing TSLA and AMZN.

 

I don't think this line of reasoning has anything to do with Buffett's quote. Yes, a small bank trading a half of book value will be analzed differently than Tesla Motors. But that totally misses the point. TSLA, AMZN, and any "deep value microcap" will all ultimately be valued the same way: on their future cash earnings. Buffett's point, and it's correct, is that there's no reason to approach the analysis any differently -- what it's going to earn over time? Unless you can estimate the figure in some useful way, you're not investing. You're doing something else. Calling it "growth" or "value" is nonsense. It obscures the basic truth. And that's why a lot of people lose a lot of money investing in "growth companies" that'll never earn anything and "value companies" that are basically worthless.

 

The point they make about no distinction between value and growth is just that intelligent investing is about paying less up front than what you'll get over time discounted back to the present. It doesn't matter one whit whether the future cash flows come from a rather mature company or a rapidly growing one.

[Palantir]

Washington Post, Geico and ABC/Cap Cities were all "growth" investments at the time of purchase. Buying a "growth" company at 50% of fair value is no different than buying a company in liquidation at 50% of book, if that book value is fair value.

 

They were at best, GARP investments with predictable earnings streams.

[Palantir]

I don't think this line of reasoning has anything to do with Buffett's quote. Yes, a small bank trading a half of book value will be analzed differently than Tesla Motors. But that totally misses the point. TSLA, AMZN, and any "deep value microcap" will all ultimately be valued the same way: on their future cash earnings. Buffett's point, and it's correct, is that there's no reason to approach the analysis any differently -- what it's going to earn over time? Unless you can estimate the figure in some useful way, you're not investing. You're doing something else. Calling it "growth" or "value" is nonsense. It obscures the basic truth. And that's why a lot of people lose a lot of money investing in "growth companies" that'll never earn anything and "value companies" that are basically worthless.

 

That's a very trivial point. All companies are traded on their future cash earnings, but then is all investing the same? By that logic, all investing is value investing, and I don't buy that line of reasoning. It is impossible to really predict TWTR's cash earnings, and the lines of thinking that are used to analyze this stock or TSLA are very different from a "value" stock, which is why investors of one type rarely invest in the other, and that's the reason why value investors are utterly befuddled by some of these names ("I'm going to put this stock into the "too hard pile"  :) ). Forget "joined at the hip", it's pretty much a different game altogether, and that's why Buffet is wrong.

 

 

[bmichaud]

Yes, for sure speculating that the next fool will pay more than the previous one for companies like TWTR and TSLA is an entirely different game than Buffett plays. Doesn't mean he is wrong.

[Palantir]

If you think that the only investment case for TSLA is betting that the next fool will pay more, then it is all the more evidence for why Buffett is wrong.

[Rabbitisrich]

All such quotes to the effect of "ignore macro". You have to know what you have to know, and all business expectations are implicit assumptions about macro environments.

[CanadianMunger]

Hmm.  Warren Buffett vs Palantir.  Thats a tough one.

 

-CM

[RichardGibbons]

If you think that the only investment case for TSLA is betting that the next fool will pay more, then it is all the more evidence for why Buffett is wrong.

 

I'm actually curious about this.  So, if you exclude "sell to a greater fool" as a reason for buying, and an estimate of future cash flows as a reason for buying, what is the reason for buying Tesla?

 

I just want to understand what you're getting at.

[Myth465]

Hmm.  Warren Buffett vs Palantir.  Thats a tough one.

 

-CM

 

That is a funny but cheap shot.

Funny though.  ;D

[Palantir]

If you think that the only investment case for TSLA is betting that the next fool will pay more, then it is all the more evidence for why Buffett is wrong.

 

I'm actually curious about this.  So, if you exclude "sell to a greater fool" as a reason for buying, and an estimate of future cash flows as a reason for buying, what is the reason for buying Tesla?

 

I just want to understand what you're getting at.

 

Think of it this way - can you estimate TSLA, TWTR, or FB future cash flows? If you could, doing so requires ways of thinking that are totally different from value investing in say, a net-net. How many value investors do you see in these names? How many times do you see someone say "I'm going to put this in the too hard pile". Markets are pretty much segmented because investors fish in different pools.

 

On paper, growth is a component of value, in practice, it is a different game. Are all investors in these firms expecting to sell to a "greater fool"? Those are momentum, not growth investors. Does that mean there is no legitimate investment case for investing in FB?

 

 

[Patmo]

Hmm.  Warren Buffett vs Palantir.  Thats a tough one.

 

-CM

 

See my post, page 2...

[merkhet]

If you think that the only investment case for TSLA is betting that the next fool will pay more, then it is all the more evidence for why Buffett is wrong.

 

I'm actually curious about this.  So, if you exclude "sell to a greater fool" as a reason for buying, and an estimate of future cash flows as a reason for buying, what is the reason for buying Tesla?

 

I just want to understand what you're getting at.

 

Think of it this way - can you estimate TSLA, TWTR, or FB future cash flows? If you could, doing so requires ways of thinking that are totally different from value investing in say, a net-net. How many value investors do you see in these names? How many times do you see someone say "I'm going to put this in the too hard pile". Markets are pretty much segmented because investors fish in different pools.

 

You're getting tripped up in a semantic problem.

 

There is a difference between a priori and a posteriori calculations of cash flow. It's incontrovertible that the intrinsic value of a company is the present value of its future cash flows. The answer to your first question is that, for most people, it's not possible to estimate with any degree of certainty even the floor for the future cash flows of these three companies. (Though I think Tesla is probably an easier company to forecast than the other two.) Notably, this is not because value investors can't "see" what other people see. In fact, it is more likely that what other investors "see" is illusory.

 

There is no difference in the way that you evaluate a company like Tesla versus a company like General Motors. In a general way, it's just a matter of (1) how many vehicles can the company make per year (and get absorbed into demand), (2) what margin can they maintain per vehicle, and (3) what is the likelihood of technological disruption to their business?

 

On paper, growth is a component of value, in practice, it is a different game. Are all investors in these firms expecting to sell to a "greater fool"? Those are momentum, not growth investors. Does that mean there is no legitimate investment case for investing in FB?

 

Not all people are expecting to sell to a greater fool. I suspect many people are invested because they believe more highly in their powers of clairvoyance than they should given their track record of clairvoyance.

 

And yes, it's possible that there is no legitimate case for investing in Facebook so long as there is no objectively passable way to know a priori the company's cash flow. The fact that it might work out well if Facebook can crack mobile advertising has no bearing on whether it's a good investment. A lottery ticket can pay out as well, but that doesn't make it a good investment.

[topofeaturellc]

this paradox is also sort of why its rational growth stories react to earnings the way they do (and why since in aggregate we have no skill at figuring out earnings forecasts growth investing doesn't work)

[Palantir]

 

 

You're getting tripped up in a semantic problem.

 

There is a difference between a priori and a posteriori calculations of cash flow. It's incontrovertible that the intrinsic value of a company is the present value of its future cash flows. The answer to your first question is that, for most people, it's not possible to estimate with any degree of certainty even the floor for the future cash flows of these three companies. (Though I think Tesla is probably an easier company to forecast than the other two.) Notably, this is not because value investors can't "see" what other people see. In fact, it is more likely that what other investors "see" is illusory.

 

I think you are getting confused. Value of a company is of course the PV of cash flows, however the analysis to getting to that is very different for different styles of firms, and those that are good at one style (value) rarely can apply the same analysis to another (growth). In the same way, winning a soccer game is about scoring more goals than the other team, however, there are many diverse strategies of getting there, and usually players that fit one style may not fit another.

 

There is no difference in the way that you evaluate a company like Tesla versus a company like General Motors. In a general way, it's just a matter of (1) how many vehicles can the company make per year (and get absorbed into demand), (2) what margin can they maintain per vehicle, and (3) what is the likelihood of technological disruption to their business?

 

There is a significant difference in how you evaluate TSLA vs GM. GM's incomes are far more predictable than TSLA, whereas in TSLA's case each of those above metrics are highly uncertain, it is the same reason that they attract different groups of investors.

 

 

 

 

And yes, it's possible that there is no legitimate case for investing in Facebook so long as there is no objectively passable way to know a priori the company's cash flow. The fact that it might work out well if Facebook can crack mobile advertising has no bearing on whether it's a good investment. A lottery ticket can pay out as well, but that doesn't make it a good investment.

 

No, there definitely has been a legitimate investment case for owning FB, and people have made it many times, and have been proven correct given how well those that bought it have performed. And no, a lottery ticket can be a great investment if you find a way to raise your odds of winning.

[merkhet]

this paradox is also sort of why its rational growth stories react to earnings the way they do (and why since in aggregate we have no skill at figuring out earnings forecasts growth investing doesn't work)

 

I wouldn't say that growth investing doesn't work at all -- it can work so long as you're not paying for growth. If I buy a company for 10x FCF (hopefully less) with the knowledge that there is some growth defined by the function where growth_rate=min(0,X) then it can work quite well.

 

It's only growth investing at 25x FCF that tends not to work out. (Google is a notable exception, though, it may have been possible at the time to realize that the amount of growth Google had in front of it was immense enough to make 25x FCF not a terrible idea.)

[merkhet]

I think you are getting confused. Value of a company is of course the PV of cash flows, however the analysis to getting to that is very different for different styles of firms, and those that are good at one style (value) rarely can apply the same analysis to another (growth). In the same way, winning a soccer game is about scoring more goals than the other team, however, there are many diverse strategies of getting there, and usually players that fit one style may not fit another.

 

Again, you are getting tripped up in semantics. Whether or not the value crowd is able to apply the same analysis as the growth crowd is largely irrelevant. They are both, as I stated a few posts ago, trying to lay out less money now than what they would receive in present value from the future cash flows.

 

I know nothing of soccer, so allow me to use American football terminology. It doesn't matter if you have a running game or a passing game. The goal is the same for every single team. This is what Buffett and Munger mean when they say there is no difference between value and growth.

 

There is a significant difference in how you evaluate TSLA vs GM. GM's incomes are far more predictable than TSLA, whereas in TSLA's case each of those above metrics are highly uncertain, it is the same reason that they attract different groups of investors.

 

Again, semantics. There is also a difference between how you evaluate GM and Maserati. One company sells a ton of trucks. The other company does not. The type of people that buy trucks are different than the type of people that buy Maseratis. Does this mean that someone who can evaluate one cannot evaluate the other? Of course not.

 

I'm assuming you agree with me on the relevant metrics for GM and Tesla. (If not, please let me know what you think the relevant metrics might be.) We don't even disagree on the fact that Tesla's metrics are far more uncertain than GM -- where we disagree is whether or not this means that someone who can analyze GM cannot similarly analyze Tesla. Or vice versa.

 

If you come out to a conclusion that things are "too uncertain," it does not mean that you have "failed" at analyzing a company vis-à-vis other investors. It's possible that the objective truth is that no one is able to analyze the company and those that think they have are fooling themselves.

 

No, there definitely has been a legitimate investment case for owning FB, and people have made it many times, and have been proven correct given how well those that bought it have performed. And no, a lottery ticket can be a great investment if you find a way to raise your odds of winning.

 

Please explain to me the legitimate case for owning FB. I have never heard one, but I'd be happy to hear one now.

 

And just because the stock has performed well since it IPO'd two years ago means nothing -- let's not forget about Mr. Market. I could have made a similar statement about a number of companies from 1996-2000 (that the stock performed well for a full 24 months) and have been dead wrong in the end.

 

And saying a lottery ticket can be a great investment if you find a way to raise your odds of winning is like saying that a horse can make a great plane so long as it's made out of aluminum and has jet engines. Your latter comment fundamentally changes the first comment.

[Palantir]

I think you are getting confused. Value of a company is of course the PV of cash flows, however the analysis to getting to that is very different for different styles of firms, and those that are good at one style (value) rarely can apply the same analysis to another (growth). In the same way, winning a soccer game is about scoring more goals than the other team, however, there are many diverse strategies of getting there, and usually players that fit one style may not fit another.

 

Again, you are getting tripped up in semantics. Whether or not the value crowd is able to apply the same analysis as the growth crowd is largely irrelevant. They are both, as I stated a few posts ago, trying to lay out less money now than what they would receive in present value from the future cash flows.

 

I know nothing of soccer, so allow me to use American football terminology. It doesn't matter if you have a running game or a passing game. The goal is the same for every single team. This is what Buffett and Munger mean when they say there is no difference between value and growth.

 

 

Teams that depend on a great passing game don't necessarily excel with the running game and are usually exposed when the passing game is cut off. Just ask Peyton Manning.

 

So it does matter whether you have a passing game or a running game, and being good at one doesn't mean you are good at the other.

 

If you want to learn the investment case for FB, feel free to peruse the FB thread, and search Google, I'm sure you will find many enlightening things. Given that those who believe in that case have done well, your argument is pretty weak. Unless of course you subscribe to the idea that only investing in certain stocks is "legitimate".

[merkhet]

I think you are getting confused. Value of a company is of course the PV of cash flows, however the analysis to getting to that is very different for different styles of firms, and those that are good at one style (value) rarely can apply the same analysis to another (growth). In the same way, winning a soccer game is about scoring more goals than the other team, however, there are many diverse strategies of getting there, and usually players that fit one style may not fit another.

 

Again, you are getting tripped up in semantics. Whether or not the value crowd is able to apply the same analysis as the growth crowd is largely irrelevant. They are both, as I stated a few posts ago, trying to lay out less money now than what they would receive in present value from the future cash flows.

 

I know nothing of soccer, so allow me to use American football terminology. It doesn't matter if you have a running game or a passing game. The goal is the same for every single team. This is what Buffett and Munger mean when they say there is no difference between value and growth.

 

 

Teams that depend on a great passing game don't necessarily excel with the running game and are usually exposed when the passing game is cut off. Just ask Peyton Manning.

 

So it does matter whether you win with a passing game or a running game, and being good at one doesn't mean you are good at the other.

 

Yes, and being good at one does not mean that you are necessarily bad at the other, as you have suggested previously in this thread.

 

Palantir. Given ur growth bent I would think you'd like that one. Actually one if my favorites of all time, and unlike INVERT, is not put into practice nearly enough.

 

I think they are very very different. The people who are good at picking deep value micro caps WILL NOT be good at analyzing TSLA and AMZN.

 

Editor's Note: The CAPS are mine.

 

Some people are good at math and bad at English.

Some people are good at English and bad at math.

It does not follow that all people who are good at math are bad at English and vice versa.

[Palantir]

If they were joined at the hip, people who were good at Math would almost always be good at English. But people who are good at Math are usually good at Physics, which are indeed joined at the hip.

[topofeaturellc]

this paradox is also sort of why its rational growth stories react to earnings the way they do (and why since in aggregate we have no skill at figuring out earnings forecasts growth investing doesn't work)

 

I wouldn't say that growth investing doesn't work at all -- it can work so long as you're not paying for growth. If I buy a company for 10x FCF (hopefully less) with the knowledge that there is some growth defined by the function where growth_rate=min(0,X) then it can work quite well.

 

It's only growth investing at 25x FCF that tends not to work out. (Google is a notable exception, though, it may have been possible at the time to realize that the amount of growth Google had in front of it was immense enough to make 25x FCF not a terrible idea.)

 

I dont think buy a company that is trading on 10x FCF or even 10X some prior years CF w/some sort of optionality is really "growth investing"

[merkhet]

I dont think buy a company that is trading on 10x FCF or even 10X some prior years CF w/some sort of optionality is really "growth investing"

 

Fair enough.

[PatientCheetah]

And no, a lottery ticket can be a great investment if you find a way to raise your odds of winning.

 

a good example

http://www.wired.com/2011/01/ff_lottery/

[peter1234]

And no, a lottery ticket can be a great investment if you find a way to raise your odds of winning.

 

a good example

http://www.wired.com/2011/01/ff_lottery/

 

This is a cool article!

 

;)

[cwericb]

Perhaps this has been mentioned already. You are pretty well fully invested, the market tanks and you are thinking of how much money you have lost, people start telling you what a great "investment opportunity" it is.