Michael, you said CW says but there's a new era.
If you mean by that what some say is that the old rules in investing don't apply any more, I don't agree. The old rules still apply and in my mind they will always apply. Find good companies within good industries with good growth prospects. That is the essence of investing.
But if you mean that there is a fundamental shift in our economy, then I heartily agree.
Let's compare and contrast three approaches for the moment: value investing, Buffett investing, and growth investing.
Value investing is the most constrained of the three because it needs to find companies that are mispriced for whatever reason. But its primary characteristic is that once a company is properly priced there is little reason to hold it. So, my question is this -- isn't it fair to characterize the value investor in similar terms as a market maker?
Buffett investing is value oriented to some extent, but much less constrained than value investing. It seems to be more concerned with the predictability of future cash flows, and its insistence on large capitalization stocks makes finding "undervalued" stocks virtually impossible (if you believe in any incarnation of the EMH). The universe of these stocks is necessarily limited to relatively slow-growing companies in well-defined markets. Companies like KO are typical. But I ask myself this question: how much growth does the soft drink industry have? As an industry, can it really grow that much faster than population growth? But make no mistake about it, Buffett is looking for growth that he can understand and analyze.
But there is another universe out there. This universe consists of highly innovative companies producing goods and services that have the quality of literally transforming society. The way we work, the way we play, the way we shop, and the length and quality of our lives are being transformed by these firms. The promise and the risk that these companies hold for investors are the very qualities that preclude them from consideration by Buffett-type investors. Many of them are unproven, with untested managements, and anything but predictable earnings. But there were those of us who saw that promise in companies like MSFT and CPQ in the early to mid 1980's, and DELL and CSCO and AOL in the 90's.
My entire contention is that Buffett is ill-equipped to evaluate those kinds off opportunities. And just because he is at a loss as to how to evaluate these companies should you assume a similar impediment? If the risk inherent in these companies is something you cannot comfortably bear, I can well-understand it. But to shy away simply because they violate Buffett's rules is a self-imposed limitation I cannot understand.
TTFN,
CTC |
