I think you are right to some extent; however, I expect his thinking would have evolved to placing value on inherent growth in defensive and strong investments (eg. Buffet's moat) rather than loosening his analytical criteria to instead focus on EV/EBITDA or new metrics.
The real change has, in my opinion, been that in losing the gold standard since his experiences, the world faces inflationary boom and busts rather than deflationary recessions. Thus, your thinking has to be modified to considering assets (tangible and intangible) that are always going to be repriced upwards to some extent, leaving the accounting behind if it is simple based upon historic cost.
I don't agree that simply as the world has (seemingly) become even more speculative, and capital structures more debt-laden and complex, that it would cause him to now look at EBITDA as a metric - the debt remains a risk to the equity investor and the capex still has to be financed to create long-term value.
Instead, I would expect him to consider whether companies with strong franchises are likely to be able to take a higher debt load, as their inherent value in expanding the franchise (eg Coke, GEICO et al) deliver a different margin of safety.
Problem with taking the view that he loosens his rules is that you lose the essential principles of being a value investor, and find yourself justifying ever higher prices just as the crowd are doing so.
Although I have at times thought we are entering a double-dip recession, I don't really take a view on that in my investments; it is the protection that I seek for the long-term. With the double-dip now potentially averted, and inflation instead forthcoming, I haven't changed my perception that I should be invested in strong-franchises. Inherently, their value should move with inflation so I don't have to worry, and likewise it will endure through a secondary dip if that occurs.
A bull market is just an upside to that, but I don't want to chase it or speculate.
Would you consider that a sensible approach for the new paradigm?
Alex |
