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Except that's not what they did. They looked at what's probably the most meaningful ratio, and they found that it's not merely lower but around 5x lower. (Thi

by pg 13y ago

Except that's not what they did. They looked at what's probably the most meaningful ratio, and they found that it's not merely lower but around 5x lower. (This sort of comment is a good illustration of a problem with forums, incidentally. Once a forum has users who reply by mischaracterizing what you say, every comment is twice as much work. First you say what you want to, and then you have to make another comment saying in effect "no, what I said was...")

7Figures2Commas 13y ago
> They looked at what's probably the most meaningful ratio... Says who? While price-to-sales can be a very useful metric, I don't know any experienced market participant who invests or trades off of fundamentals who would argue absolutely that price-to-sales is the most meaningful ratio off of which to determine whether a company is undervalued, overvalued or fairly valued. And using the median value of this ratio at IPO alone with a small subset of companies in an effort to argue for or against the notion that there's a "bubble"? That's simply not credible. For what it's worth, if you do want to look at price-to-sales, and in a more meaningful context, it's worth considering that the median price/sales ratio in the US markets is at a record high and exceeds the mean by a near record margin as well[1]. [1] http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/AE%20Price%20Sales%20Median.jpg http://www.zerohedge.com/sites/default/files/images/user5/im...
- wtvanhest 13y ago
  "I don't know any experienced market participant who invests or trades off of fundamentals who would argue absolutely that price-to-sales is the most meaningful ratio off of which to determine whether a company is undervalued, overvalued or fairly valued." Despite the fact that the most knowledgeable people in finance and business management widely agree that the most rapid growth cannot take place in a company also turning out maximum profit, HN participants still continually demand profit be the most important metric. Profit is not the most important metric, and never will be for growth companies. In fact, if you use profit ratios as your metric for growth companies, you will be wrong 100% of the time. Not just sometimes, 100% of the time. Price/Sales is a great ratio to use and in most cases probably is the most meaningful ratio. Additionally, the medium price/sales ratio for the entire market has little to do with an ultra small subset of technology companies IPOing. That US Price/Sales ratio you quoted also includes highly profitable, but non-growth companies like utilities and other old businesses. Just consider the BCG growth matrix for a few hours, think about how companies work, then come back and suggest a better metric than price/sales. If you come up with something smarter than that, I will be really, really impressed.
  - 7Figures2Commas 13y ago
    > HN participants still continually demand profit be the most important metric. That may or may not be true, but nothing in my comment suggested this was the case. In fact, if you argued that the price-to-earnings ratio was the most meaningful metric for investment and trading decisions, my response would be the same: it can be very useful, but alone it can get you into a lot of trouble. Nobody experienced is investing/trading off of a P/E comparison that takes a fraction of a minute. > Additionally, the medium price/sales ratio for the entire market has little to do with an ultra small subset of technology companies IPOing. Trying to understand a subsection of the market without understanding the broader market is a recipe for disaster. This is especially true in today's market. For clarity: 1. There are companies that deserve premium valuations. Some of these are tech companies. 2. The Fed is driving the market today, so valuation is very, very difficult. 3. Folks who believe there are publicly-traded companies that haven't been impacted by QE and that aren't vulnerable to major moves in either direction based on changes in monetary policy are going to be hammered. > Just consider the BCG growth matrix for a few hours, think about how companies work, then come back and suggest a better metric than price/sales. If you come up with something smarter than that, I will be really, really impressed. I don't completely ignore fundamentals but I trade primarily off technicals so I'm afraid I'm not going to impress you. That said, I would offer the observation that anyone who looks at trendlines has probably made a lot more money with far less effort over the past several years than folks who are obsessed with fundamentals.
    - wtvanhest 13y ago
      "I don't completely ignore fundamentals but I trade primarily off technicals so I'm afraid I'm not going to impress you. That said, I would offer the observation that anyone who looks at trendlines has probably made a lot more money with far less effort over the past several years than folks who are obsessed with fundamentals." Technical analysis has been repeatedly proven to not be a valid investment strategy over long periods of time. Even still, your statement is true since technical analysis requires no effort and the market has moved up dramatically, but you could also say the same thing about picking random stocks using a randomizer. Its easy to feel like a hero in this market. If you don't understand fundamental analysis, why would you comment so forcefully about fundamental analysis? [Edit] I just realized I am backing up PG, he needs no backing, he has the most successful incubator in the history of tech investing. Maybe it is worth considering what he says before assuming a ratio you haven't spent much time thinking about is not that important.
seiji 13y ago
(See http://dilbertblog.typepad.com/the_dilbert_blog/2007/04/my_new_favorite.html http://dilbertblog.typepad.com/the_dilbert_blog/2007/04/my_n... — "I’ve noticed that a lot of people, if not most, have sharp disagreements with what they hallucinate to be my opinions.")

by pg 13y ago

7Figures2Commas 13y ago

> They looked at what's probably the most meaningful ratio... Says who? While price-to-sales can be a very useful metric, I don't know any experienced market participant who invests or trades off of fundamentals who would argue absolutely that price-to-sales is the most meaningful ratio off of which to determine whether a company is undervalued, overvalued or fairly valued. And using the median value of this ratio at IPO alone with a small subset of companies in an effort to argue for or against the notion that there's a "bubble"? That's simply not credible. For what it's worth, if you do want to look at price-to-sales, and in a more meaningful context, it's worth considering that the median price/sales ratio in the US markets is at a record high and exceeds the mean by a near record margin as well[1]. [1] http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/AE%20Price%20Sales%20Median.jpg http://www.zerohedge.com/sites/default/files/images/user5/im...

wtvanhest 13y ago
"I don't know any experienced market participant who invests or trades off of fundamentals who would argue absolutely that price-to-sales is the most meaningful ratio off of which to determine whether a company is undervalued, overvalued or fairly valued." Despite the fact that the most knowledgeable people in finance and business management widely agree that the most rapid growth cannot take place in a company also turning out maximum profit, HN participants still continually demand profit be the most important metric. Profit is not the most important metric, and never will be for growth companies. In fact, if you use profit ratios as your metric for growth companies, you will be wrong 100% of the time. Not just sometimes, 100% of the time. Price/Sales is a great ratio to use and in most cases probably is the most meaningful ratio. Additionally, the medium price/sales ratio for the entire market has little to do with an ultra small subset of technology companies IPOing. That US Price/Sales ratio you quoted also includes highly profitable, but non-growth companies like utilities and other old businesses. Just consider the BCG growth matrix for a few hours, think about how companies work, then come back and suggest a better metric than price/sales. If you come up with something smarter than that, I will be really, really impressed.
- 7Figures2Commas 13y ago
  > HN participants still continually demand profit be the most important metric. That may or may not be true, but nothing in my comment suggested this was the case. In fact, if you argued that the price-to-earnings ratio was the most meaningful metric for investment and trading decisions, my response would be the same: it can be very useful, but alone it can get you into a lot of trouble. Nobody experienced is investing/trading off of a P/E comparison that takes a fraction of a minute. > Additionally, the medium price/sales ratio for the entire market has little to do with an ultra small subset of technology companies IPOing. Trying to understand a subsection of the market without understanding the broader market is a recipe for disaster. This is especially true in today's market. For clarity: 1. There are companies that deserve premium valuations. Some of these are tech companies. 2. The Fed is driving the market today, so valuation is very, very difficult. 3. Folks who believe there are publicly-traded companies that haven't been impacted by QE and that aren't vulnerable to major moves in either direction based on changes in monetary policy are going to be hammered. > Just consider the BCG growth matrix for a few hours, think about how companies work, then come back and suggest a better metric than price/sales. If you come up with something smarter than that, I will be really, really impressed. I don't completely ignore fundamentals but I trade primarily off technicals so I'm afraid I'm not going to impress you. That said, I would offer the observation that anyone who looks at trendlines has probably made a lot more money with far less effort over the past several years than folks who are obsessed with fundamentals.
  - wtvanhest 13y ago
    "I don't completely ignore fundamentals but I trade primarily off technicals so I'm afraid I'm not going to impress you. That said, I would offer the observation that anyone who looks at trendlines has probably made a lot more money with far less effort over the past several years than folks who are obsessed with fundamentals." Technical analysis has been repeatedly proven to not be a valid investment strategy over long periods of time. Even still, your statement is true since technical analysis requires no effort and the market has moved up dramatically, but you could also say the same thing about picking random stocks using a randomizer. Its easy to feel like a hero in this market. If you don't understand fundamental analysis, why would you comment so forcefully about fundamental analysis? [Edit] I just realized I am backing up PG, he needs no backing, he has the most successful incubator in the history of tech investing. Maybe it is worth considering what he says before assuming a ratio you haven't spent much time thinking about is not that important.

seiji 13y ago

(See http://dilbertblog.typepad.com/the_dilbert_blog/2007/04/my_new_favorite.html http://dilbertblog.typepad.com/the_dilbert_blog/2007/04/my_n... — "I’ve noticed that a lot of people, if not most, have sharp disagreements with what they hallucinate to be my opinions.")