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Strategies & Market Trends : Value Investing
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Lance Bredvold
Spekulatius
To: bruwin who wrote (74665)12/29/2023 9:12:40 AM
From: FIFO_kid22 Recommendations   of 78778
 
I think the main driver of what is relevant here is dependent upon the monetary cycle and the appetite for risk. If you can pick a leader in a business with major secular growth with easy monetary tailwinds like QE and zero interest rates returns on capital are certainly overlooked for quite some time and the growth story seems to become very important.

But when monetary conditions tighten debt and the ability to raise capital raises the risk and the growth story becomes less important and that is why those unprofitable stocks suffered a greater percentage loss when monetary conditions tightened.

Money losing tech works fine in the long term if you can pick the leader and get the secular growth theme right and assuming that management isn't overly greedy which measuring them is the toughest task in investing. To this day I own 40% of my EQIX scaled positions acquired in 2002 and at the time when acquired the company was losing money but I understood the secular growth of data and its leadership position.

ROIC is my favorite accounting metric especially for businesses showing secular growth and where your methodology shines is it requires the least amount of work, research and less alpha risk. However, it is important to classify if the business is cyclical or secular growth. If it is secular growth the investment can tolerate too much capital and use a buy and hold strategy (currently a problem Buffett has).

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