4 ms·

I'd still argue than metrics like EV/FCF give some indication of valuation / risk. Balance sheets become less meaningful going forward. Google's greatness is n

I'd still argue than metrics like EV/FCF give some indication of valuation / risk. Balance sheets become less meaningful going forward. Google's greatness is not to be found in its physical assets.

acconrad 8y ago
Yes, I agree! Metrics are extremely important in screening out for value stocks. What I'm saying simply is that there is no singular magical metric that can wipe out hours and hours of research. To simply list all stocks by EV/FCF ordered by cheapness will not automatically create a winning portfolio.
- aaavl2821 8y ago
  There's a sort of common strategy that uses EV / FCF (or something like that) as a metric for cheapness and ROIC as a metric for "good" businesses (to avoid value traps). I believe it has done pretty well
  - acconrad 8y ago
    It's the Magic Formula (EV/EBIT and ROIC) and it has not always performed well: https://seekingalpha.com/article/4116677-greenblatts-magic-wand-must-broken-year-magic-formula-large-midcap-update-2017-ytd https://seekingalpha.com/article/4116677-greenblatts-magic-w...
colossal 8y ago
In my completely amateur opinion, that is the one major reason why value investing is so much harder today. When Graham and later Buffett were executing this strategy to enormous success, most of a companies valuation could be traced back to it's assets -- excluding intellectual property. Now that IP is such a large part of valuations, it's much harder to execute this strategy because IP is inherently harder to valuate than tangible assets. And consequently, it's much more difficult to accurately access the difference between price and value.
aaavl2821 8y ago
Balance sheet metrics can still be important. Return on invested capital (ROIC) is a very popular "value" metric showing what a business can earn by investing in its business. The denominator is calculated from the balance sheet Basically, if you are a good business with a strong moat, you will be able to invest in your business at a compounding rate. ROIC is a way to measure this

I'd still argue than metrics like EV/FCF give some indication of valuation / risk. Balance sheets become less meaningful going forward. Google's greatness is not to be found in its physical assets.

acconrad 8y ago

Yes, I agree! Metrics are extremely important in screening out for value stocks. What I'm saying simply is that there is no singular magical metric that can wipe out hours and hours of research. To simply list all stocks by EV/FCF ordered by cheapness will not automatically create a winning portfolio.

aaavl2821 8y ago
There's a sort of common strategy that uses EV / FCF (or something like that) as a metric for cheapness and ROIC as a metric for "good" businesses (to avoid value traps). I believe it has done pretty well
- acconrad 8y ago
  It's the Magic Formula (EV/EBIT and ROIC) and it has not always performed well: https://seekingalpha.com/article/4116677-greenblatts-magic-wand-must-broken-year-magic-formula-large-midcap-update-2017-ytd https://seekingalpha.com/article/4116677-greenblatts-magic-w...

colossal 8y ago

In my completely amateur opinion, that is the one major reason why value investing is so much harder today. When Graham and later Buffett were executing this strategy to enormous success, most of a companies valuation could be traced back to it's assets -- excluding intellectual property. Now that IP is such a large part of valuations, it's much harder to execute this strategy because IP is inherently harder to valuate than tangible assets. And consequently, it's much more difficult to accurately access the difference between price and value.

aaavl2821 8y ago

Balance sheet metrics can still be important. Return on invested capital (ROIC) is a very popular "value" metric showing what a business can earn by investing in its business. The denominator is calculated from the balance sheet Basically, if you are a good business with a strong moat, you will be able to invest in your business at a compounding rate. ROIC is a way to measure this