I trust you apply those same questions to your own methods. :-)
I would ... if I had any!
No matter what approach one takes, there is always the probability that more profit could have been made. Maximizing profits is a dream.
What I am suggesting is fundamentally different than looking back and second guessing what one might have done to maximize profit ... in fact, it doesn't need to have anything to do with the decisions which one made in the past unless one is trying to evaluate one's current tool.
Let's say that one has been using the ABC ratio for some years with breakpoints at E and F for buy and sell and, except for the past year, one feels that one has done OK relative to goals. Along comes someone that one respects who suggests that the XYZ ratio with breakpoints at U and V is a better tool for what seem to be credible reasons. How do you decide what to do?
Well, one obvious thing to do is to look back at the stocks one has been interested in for some period and see what different decisions this tool would have suggested and what the outcome would have been with those decisions instead of the ones one made.
While one was at it, one might even fiddle with the breakpoints a bit, especially when one finds situations which are close to the breakpoint. And then reply the ABC tool in the same way.
To be sure, this is, as you say, just the last step in looking at a company so I am not talking about mass searches and the like here, just examining entry and exit points to the universe one has already selected. I.e., one didn't buy Such and Such at X because of the tool one was using at the time; was it a good decision? Is there a signal that would have gotten one out of Such and Such before it declined? Are there reliable signals that would allow one to get in and out of a company multiple times during a bubble and bust cycle to profit?
Unfortunately for what I think you might be asking, they test large numbers of stocks, rather than being limited to any subgrouping
Worse yet, they are probably using published numbers.
Hmm...you aren't saying that speculation is more tested, are you? :-)
No, I am saying that speculating on the future of a company with a history of 15-25% growth involves less pure guessing than one with a history of 15-150% growth.
So what if Buffett doesn't buy tech? Other people use valuation in buying tech. The principles don't change.
And, all I am looking for is a bit of validation to support one or more of the proposed methods of valuation, particularly as applied to the family of companies we are discussing here. |
