However, this doesn't mean that we can't take a candidate method, roll back the clock 5 years, apply it to a test company as it was then, and then roll the clock forward, repeating the test once a year or so, and see how the sequence of valuations corresponded to the actual history. Given the forum, we would want to do this for several gorillas of different types and then we would want to do it for other one-time candidate gorillas which obviously haven't made it. We would see how the analysis made the companies look in pre-bubble, more "normal" times and how the company was changed in appearance during the bubble. We would ask ourselves in this hindsight analysis whether we would have received the kind of buy or sell signals at appropriate times and we could model what responding to those signals would have meant to our investment in comparison with holding all the way through.
Forget gorillas for the moment. Most valuation methods have already been tested in real time, with real money. If you want to do backtesting, I think that is great - I'm always in favor of more information. But do acknowledge that at least a few successful investors (Buffett has given speeches naming some of the prominent ones) and even nobodies such as myself have been using these methods for years. Now you can choose to argue that any benefits gained by this could be coincidence. But if you do, acknowledge that the same can be argued for whatever benefits you have seen from any methods you have used.
Now if you are of the belief that Gorillas are such an anomaly that such methods at least need to be tested on them, that's fine. More information is always good, and I've already offered to help you.
why practice on something which can't pass a test like this? Why adopt a method going forward which can't handle predicting the past? And, unless that test is made, how do I have any idea whether the numbers or signals it is giving me have any value?
Valuation does not predict!
For those of us who have been using such methods long term (and I by no means put myself in the same class as these prominent investors) these methods have been tested and they have passed. If you consider it necessary to backtest them on a group of stocks which you consider anomalous, I think that's great. As I said before, I'm even willing to help you do it. As you've said before, you lack the time and inclination to do it, so unless somebody else shares your interest but has more time to do the testing, it isn't likely to be done.
- Pirah |
