Well, Jurgis, I’m sorry to read that you’ve decided to take the approach you have. We’ve had some interesting exchanges in the past with many positives, IMO, coming out of those discussions, especially from your side of the fence.
You made one or two remarks which I believe need answering as I see them as being unfair and unsubstantiated ...
a) I never have, and I certainly hope I never will, regard myself as an “expert” on the topic of our discussion. I challenge anyone on any of the SI Boards to point to a post of mine where I referred to myself as an “expert” on company analysis.
b) I participate in the stock market to make a capital gain. To do that I look for specific criteria within a company’s financial statements that support the ability to do that. To demonstrate that process, over time, I’ve publicly shown several portfolios, with relatively few stocks, that have achieved good capital gain over time. I have also, over time, referred to individual stocks, such as EBIX and GFRE, with the same purpose in mind.
c) “Overpriced stock can become ridiculously overpriced”. But “overpriced” according to what definition and criteria ? From one standpoint the stock apparently appeared too expensive so there were those who stayed away from it. From another standpoint the stock portrayed the current ability to make good, ongoing and attractive profits, so those individuals bought it. “The proof of the pudding” was in the appreciable price gain which reflected the profit making potential which the overall Market found attractive. That doesn’t mean one has to “get married” to NFLX’s stock.
I have always questioned the ability or relevance of identifying stocks from the perspective of Book Value and other related metrics, that will regularly achieve capital gain. The fact that a stock’s price has fallen sufficiently such that it’s well below Book Value is surely no guarantee that it’s now underpriced to the extent that one is virtually assured that it will make a substantial capital gain. That’s not to say that it won’t, but I’d say that one would want to see constructive signs of that beginning to happen from within its Income Statement.
And it’s not a case of taking a “random stock” that went up 300%. I didn’t find EBIX by sticking a pin into a list of stocks. It’s a case of doing a stock screen of many hundreds of industrial type companies (not banks, or financial institutions etc..) and ending up with 60 to 80 companies that pass the first hurdle. It’s then a case of doing further screening to shorten that list to about 10 or 20 that Simultaneously satisfy All the criteria. And even then, over the time it takes for several financial reports, it may be that the financials of those companies deteriorate to the extent that it’s advisable to sell. There’s no “Holy Grail”.
But for those who use Book Value or EV related ratios, or DCF, etc.. etc.., that’s entirely your choice and your business.
However, I will continue to question their relevance in certain situations and I am more than willing to discuss or debate the issue in a constructive manner. |
