Been thinking about this for a while and as the length of your post shows, there is A LOT to be said about this topic.
I absolutely don't believe value investing is dead. But predicting short term multiple expansion is speculative at best.
Also it seems vast majority of investors try to find some formula, metric or template that is replicable to all companies to save time and efforts.
But every company is different and every situation is different.
A company could trade at 4 p/e but if you dig deeper you see that the company needs to reinvest all cashflow to maintain earnings. Is such a company really worth more than 4 p/e then ?
I now never pick stocks for which the thesis is based on re-rating. As you wrote, I choose companies that will take care of it themselves.
An example: $BKNG is trading at 16x FCF. Do I think it should deserve a 20-24x multiples? Yes.
Does it matters in my thesis? No.
$BKNG takes a +4% in rooms bookings and translate this into a +15% EPS growth. So even if $BKNG would stick at 16x, I would make 15% return based on EPS growing.
Multiples can then fluctuate between 8x and 30x during my long holding timeframe that I wouldn't bother or be frustrated by markets.
The inexplicable lack of market reaction sometimes and then very violent moves other times is one thing I have observed and experienced a lot recently.
Been thinking about this for a while and as the length of your post shows, there is A LOT to be said about this topic.
I absolutely don't believe value investing is dead. But predicting short term multiple expansion is speculative at best.
Also it seems vast majority of investors try to find some formula, metric or template that is replicable to all companies to save time and efforts.
But every company is different and every situation is different.
A company could trade at 4 p/e but if you dig deeper you see that the company needs to reinvest all cashflow to maintain earnings. Is such a company really worth more than 4 p/e then ?
I now never pick stocks for which the thesis is based on re-rating. As you wrote, I choose companies that will take care of it themselves.
An example: $BKNG is trading at 16x FCF. Do I think it should deserve a 20-24x multiples? Yes.
Does it matters in my thesis? No.
$BKNG takes a +4% in rooms bookings and translate this into a +15% EPS growth. So even if $BKNG would stick at 16x, I would make 15% return based on EPS growing.
Multiples can then fluctuate between 8x and 30x during my long holding timeframe that I wouldn't bother or be frustrated by markets.
Agree. My personal favorite hunting ground are also businesses compounding intrinsic value at 15%+ which may be underpriced by the market.
Excellent piece Rene!
The inexplicable lack of market reaction sometimes and then very violent moves other times is one thing I have observed and experienced a lot recently.