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I think the idea behind “value stocks” if I remember the Intelligent Investor correctly was about “book vs. market value” in many aspects. “Buy stocks worth a d

I think the idea behind “value stocks” if I remember the Intelligent Investor correctly was about “book vs. market value” in many aspects. “Buy stocks worth a dollar for pennies”. I think times have changed. When the automotive industry falters, the assets won’t be worth anything near “book value”. A very wealthy (now retired) investment banker once told me: “The stock market over-reacts, but is right about the general direction”. Growth potential, margins and inflation drive stock prices. I don’t see how tech could be anything but a winner. If anything, Corona has accelerated the need for digitization and buying patterns change. Buffet did horribly during the crisis. He admittedly undervalued Tech and invested in Airlines - big regrets. I do not think a lot of industries will go back to the way things were. Why travel in planes if you can do zoom meetings? Why your own car when you can work from home? Personally, I would rather be worried about the real estate market and office buildings folding in value...

letstryagain2 6y ago
If value investing ever worked is up for debate, at least in the sense of Buffet. The government bailed him out in 2008 “The stock market over-reacts, but is right about the general direction”. This is similiar but different to what Kostalany said: "Stockmarket and economy move like a dog and his owner; the dog walks sometimes behind, sometimes in front of him but always comes back." I like the description from Kostalany more. But in fact I believe that stocks and economy move only together in very long cycles. But you thing the automotive industry will falter AND people will move more to the country side? You obviously have never lived outside a big city.
playingchanges 6y ago
Thanks for that quote, an interesting idea to chew on. Another I’ve heard is ‘always assume you’re in a bull market until proven otherwise’.
- looping__lui 6y ago
  Thats another good one...
MrPowers 6y ago
Lofty tech valuations means that the "baseline" performance expectation for many companies is rapid revenue and profit growth. Apple will need to start making 100 billion a year in profit, Tesla needs to make 20 billion a year in profit, etc (just making up numbers to illustrate the point). The businesses can achieve solid growth, but the stock price can still lag if the growth isn't in line with expectations. Microsoft from 2000-2010 is an example of a stock price that fell even as the business kept growing year-over-year. The Intelligent Investor did discuss book value, but the pennies on the dollar quote was for companies trading below salvage value. Book value is still an important metric, but agree that it's not nearly as useful for tech companies. Traditional financial analysis is still useful when analyzing companies. assets - liabilities = book_value_of_equity, the income statement, the statement of cash flow, and the balance sheet should still be considered. It's better to compare market value vs intrinsic value. Frothy markets are when valuations start becoming increasingly detached from intrinsic value.
- looping__lui 6y ago
  Let me maybe put it a bit differently: companies disrupting or creating markets usually cannot be understood or discovered easily with a look at the balance sheet or income statement alone... The ability to create, grow and protect rents is more complex and often only understood retrospectively. I honestly don’t have a good answer how to do better. I know that “book value of equity” is useless for me. Think about the oil and gas industry. And even if the fundamentals don’t look great per se: in a time where money is printed like crazy, many industries fold - where are you gonna put your money. Tech’s growth might also be “lack of other opportunities”. Buffet would have done mich better/Value investors would have done much better had they understood how the world changed and adjusted their views. I mainly do S&P500 ETF. I dont outsmart markets.
memling 6y ago
> Personally, I would rather be worried about the real estate market and office buildings folding in value... Real estate also has a long-term demographic problem: fewer people means lower demand. We're below replacement rate[1], so as a general class I'd expect real estate to underperform. My folks sold a house in a upper-middle class neighborhood in one of the best school districts in their state. They owned for 22 years and didn't make inflation on the sale. [1] https://en.wikipedia.org/wiki/Demographics_of_the_United_States https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta...
- looping__lui 6y ago
  Thanks for sharing! Yes - but with a BUT: I think it depends where. On average this certainly is very true. But urban areas (I speak for Germany): they will probably not see a decline in population but rather an increase. Less dense areas may die out. Urban areas with strong economies are “hot” and I am not convinced this may change soon. Home-office may make “urban centers” less attractive and overvalued - but “suburbs” will remain very valuable imho. People still want to have good infrastructure and schools, so even with a shift from city-center office work to “suburb-homeoffice” I don’t think this will change... And for clarification: in Germany (over-simplified) expensive locations in city centers run at 10kEUR/sqm, suburbs maybe at 4k-7k EUR/sqm in strong regions? So this may sound “super cheap” to folks in the US with a bit of upside until we reach “US prices”. I am sorry and surprised to hear that they didn’t make inflation even on the sale... Crazy.
  - dakna 6y ago
    The average price per square meter is roughly the same in Berlin and Washington DC. The real estate market in San Francisco and the bay area is an outlier. Houses in second and third tier cities in the US are actually cheaper than comparable cities in Germany, even before you take all the additional transaction costs in Germany into account.
    - looping__lui 6y ago
      Thanks, this is interesting! For those who wonder: in some states, there is a 6.5% tax on real estate sales. You sell a house for 1 Mn EUR, the buyer has to pay 65k in taxes... Per transaction. Add the notary and add the real estate agent leaves you at 10% pretty quickly... And then the government wonders “why aren’t people more flexible in moving across the country to fill all these skilled worker gaps”... It may also be worthwhile to consider: most houses are brick houses with excellent insulation and high quality windows. The “substance” of the houses is usually built to last 50+ years...
freediver 6y ago
>Buffet did horribly during the crisis. He admittedly undervalued Tech and invested in Airlines - big regrets. Buffet actually did wonderfully. His 2016 Apple investment (which he made in front of everybody's plain eyes) grew by more than $50BN (even after Apple's recent falter) and is probably the greatest trade ever pulled off. Airlines trade that didn't go well (and clearly covid outbreak is not Buffet's fault) was worth a fraction of that.
- looping__lui 6y ago
  I think Fortune wouldn’t agree: https://fortune.com/2020/07/10/sp-500-index-apple-stock-aapl-warren-buffett-berkshire-hathaway-brka-shares-stock-market-news/ https://fortune.com/2020/07/10/sp-500-index-apple-stock-aapl... I do not know what it looks today tbh though.

letstryagain2 6y ago

If value investing ever worked is up for debate, at least in the sense of Buffet. The government bailed him out in 2008 “The stock market over-reacts, but is right about the general direction”. This is similiar but different to what Kostalany said: "Stockmarket and economy move like a dog and his owner; the dog walks sometimes behind, sometimes in front of him but always comes back." I like the description from Kostalany more. But in fact I believe that stocks and economy move only together in very long cycles. But you thing the automotive industry will falter AND people will move more to the country side? You obviously have never lived outside a big city.

playingchanges 6y ago

Thanks for that quote, an interesting idea to chew on. Another I’ve heard is ‘always assume you’re in a bull market until proven otherwise’.

looping__lui 6y ago
Thats another good one...

MrPowers 6y ago

Lofty tech valuations means that the "baseline" performance expectation for many companies is rapid revenue and profit growth. Apple will need to start making 100 billion a year in profit, Tesla needs to make 20 billion a year in profit, etc (just making up numbers to illustrate the point). The businesses can achieve solid growth, but the stock price can still lag if the growth isn't in line with expectations. Microsoft from 2000-2010 is an example of a stock price that fell even as the business kept growing year-over-year. The Intelligent Investor did discuss book value, but the pennies on the dollar quote was for companies trading below salvage value. Book value is still an important metric, but agree that it's not nearly as useful for tech companies. Traditional financial analysis is still useful when analyzing companies. assets - liabilities = book_value_of_equity, the income statement, the statement of cash flow, and the balance sheet should still be considered. It's better to compare market value vs intrinsic value. Frothy markets are when valuations start becoming increasingly detached from intrinsic value.

looping__lui 6y ago
Let me maybe put it a bit differently: companies disrupting or creating markets usually cannot be understood or discovered easily with a look at the balance sheet or income statement alone... The ability to create, grow and protect rents is more complex and often only understood retrospectively. I honestly don’t have a good answer how to do better. I know that “book value of equity” is useless for me. Think about the oil and gas industry. And even if the fundamentals don’t look great per se: in a time where money is printed like crazy, many industries fold - where are you gonna put your money. Tech’s growth might also be “lack of other opportunities”. Buffet would have done mich better/Value investors would have done much better had they understood how the world changed and adjusted their views. I mainly do S&P500 ETF. I dont outsmart markets.

memling 6y ago

> Personally, I would rather be worried about the real estate market and office buildings folding in value... Real estate also has a long-term demographic problem: fewer people means lower demand. We're below replacement rate[1], so as a general class I'd expect real estate to underperform. My folks sold a house in a upper-middle class neighborhood in one of the best school districts in their state. They owned for 22 years and didn't make inflation on the sale. [1] https://en.wikipedia.org/wiki/Demographics_of_the_United_States https://en.wikipedia.org/wiki/Demographics_of_the_United_Sta...

looping__lui 6y ago
Thanks for sharing! Yes - but with a BUT: I think it depends where. On average this certainly is very true. But urban areas (I speak for Germany): they will probably not see a decline in population but rather an increase. Less dense areas may die out. Urban areas with strong economies are “hot” and I am not convinced this may change soon. Home-office may make “urban centers” less attractive and overvalued - but “suburbs” will remain very valuable imho. People still want to have good infrastructure and schools, so even with a shift from city-center office work to “suburb-homeoffice” I don’t think this will change... And for clarification: in Germany (over-simplified) expensive locations in city centers run at 10kEUR/sqm, suburbs maybe at 4k-7k EUR/sqm in strong regions? So this may sound “super cheap” to folks in the US with a bit of upside until we reach “US prices”. I am sorry and surprised to hear that they didn’t make inflation even on the sale... Crazy.
- dakna 6y ago
  The average price per square meter is roughly the same in Berlin and Washington DC. The real estate market in San Francisco and the bay area is an outlier. Houses in second and third tier cities in the US are actually cheaper than comparable cities in Germany, even before you take all the additional transaction costs in Germany into account.
  - looping__lui 6y ago
    Thanks, this is interesting! For those who wonder: in some states, there is a 6.5% tax on real estate sales. You sell a house for 1 Mn EUR, the buyer has to pay 65k in taxes... Per transaction. Add the notary and add the real estate agent leaves you at 10% pretty quickly... And then the government wonders “why aren’t people more flexible in moving across the country to fill all these skilled worker gaps”... It may also be worthwhile to consider: most houses are brick houses with excellent insulation and high quality windows. The “substance” of the houses is usually built to last 50+ years...

freediver 6y ago

>Buffet did horribly during the crisis. He admittedly undervalued Tech and invested in Airlines - big regrets. Buffet actually did wonderfully. His 2016 Apple investment (which he made in front of everybody's plain eyes) grew by more than $50BN (even after Apple's recent falter) and is probably the greatest trade ever pulled off. Airlines trade that didn't go well (and clearly covid outbreak is not Buffet's fault) was worth a fraction of that.

looping__lui 6y ago
I think Fortune wouldn’t agree: https://fortune.com/2020/07/10/sp-500-index-apple-stock-aapl-warren-buffett-berkshire-hathaway-brka-shares-stock-market-news/ https://fortune.com/2020/07/10/sp-500-index-apple-stock-aapl... I do not know what it looks today tbh though.