Saw this article on the WSJ - Can Charlie Munger’s Investing Playbook Still Work? Even He Wasn’t So Sure - WSJ. Thought it'd be relevant for this thread.
Author certainly agrees with Elroy's way of thinking - buy big tech; value sucks.
Of course, I wasn't even alive in the nineties or the eighties or the seventies but surely this sort of take has to become more dominant when the market is getting more "bubbl-y." I'll admit I did buy some Dell shares yesterday. First trade of 2024.
And I disagree with the article. Investing in classic value in 2022 would have been genius. The likes of DAKT, KEQU and GHM are ones off the top of my head that I found "too late." There are many, many others that I don't know of, too. Low P/S, low P/B, not too much debt and positive operating cash flow would have worked a charm.
The author uses Russell 3000 value index as a barometer for value which isn't really fair given that the P/E of the Russell 1000 value index (no mistake) is nearing 20x earnings. 20x earnings for a value investor? Hmm...
Also, everyone knows that these value indices are pants!
As for the value investor, they refer to (John Rogers) - "bullish on cruise lines, housing, financial services, media and entertainment." Is that really value? That approach screams buy the dip on leverage and hope consumers don't go bust.
As for estimating where consumers are at, I'm not smart enough to do that. Consumers have been resilient. They may stay resilient. The effect of inflation has made the data hard to read.
My take is value's got harder to find in the last six months. But it was actually easy about eighteen months ago. It'll probably come back to us. But we do have to evolve and look in "new" places.
As for big tech, it doesn't make sense to me. Maybe I can make money speculating on more speculation but it's not investing. And paying 30x earnings for AAPL when it was about 12x earnings in 2015... no thanks. How can I be sure that earnings will continue to grow? Apple has a vast moat but humans do move on and obsolete tech gets left behind. Apple aren't really investing for growth - they've just widened their moat. Great for investors, until something (AI) changes things. The future just isn't *that* clear.
If I'm paying 30x earnings, I need to be darn confident in two things - a) rapid earnings growth and b) the company being around for a long time to give me half a chance. The first is possible but the latter I'm not confident in.
Another example is MSFT - between 2014 and 2018 annual EPS averaged $2.41/sh and earnings were generally consistent. But in 2019 the trend picked up and earnings increased from $5.06 to $9.68. And so the share price rocketed. But 5y average earnings are $7.64/share - meaning you're still paying about 48x average earnings. What if earnings fall? It's a large "what if" but it's a risk I cannot take.
And then you have to consider the passive effect, too. Passive flows enhance those valuations. I haven't bothered to work it out, but in 2022 (if memory serves me well) 20% of a S&P 500 company's stock was owned by passive investors. Material, yes, but not completely driving valuations (yet).
Just some thoughts.
Best,
Harshu Vyas |
