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Lofty tech valuations means that the "baseline" performance expectation for many companies is rapid revenue and profit growth. Apple will need to start making

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.

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.