https://www.joincolossus.com/episodes/75305584/damodaran-tea… Damodaran
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Thanks! Absolutely amazing interview!
Investment conclusions?
Still not hearing a SINGLE fat pitch stock idea from this board.
Investment conclusions?
Still not hearing a SINGLE fat pitch stock idea from this board.
I don’t know, there have been a number of discussions about good deals, Google being one of them now that it is down to about 20x earnings, lower than the S&P average. Berkshire would be another company, less off topic, that is reasonably priced after its recent drop, although I don’t know if it quite qualifies as a fat pitch.
In general, the market remains at historically high levels, the recent minor correction only bringing it back down from ‘highest ever’ territory to ‘1929 pre-krach’ levels.https://twitter.com/hussmanjp/status/1530242551499964417/pho…
So it is probably not realistic to think that there are a lot of fat pitches waiting to be belted out of the park. Reasonable investments with good long-term prospects, like Google and Berkshire, may be all this board can find for you, for the moment. But if share prices drop by another 50%, I promise to post some fat pitch ideas; just make sure you haven’t struck out first by swinging on too many bad pitches.
dtb
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I brought up Google
Most were Luke warm on BRKB
Maybe at $280/B
Still not hearing a SINGLE fat pitch stock idea from this board.
Is that the primary intent of this board? I certainly appreciate hearing people’s takes on what’s a bargain right now, but I thought this board’s mandate was primarily to discuss BRK, with all other investments, (or lately very specific movies,) being nice but not required, sometimes even found to be obnoxious.
Not sure why you are so ramped up about mostly incognito people on the internet not feeding you stock picks you deem worthy.
IP
31 Likes
Still not hearing a SINGLE fat pitch stock idea from this board.
Both GOOGL and KMX are trading below where I recently touted them, and bought myself.
LKQ too, if you go back a bit further to the start of the year.
DG was mentioned in a positive light again recently, though it is up nicely since then.
That doesn’t mean any of these are good investments, but there have been some ideas floated.
Even though, as others note, it is the Berkshire board.
Berkshire itself is not notably cheap at the moment and doesn’t constitute a fat pitch.
It’s at a very typical valuation level compared to the relatively steady range since the credit crunch.
Jim
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So, as an example, why is/was(last week) GOOGL a fat pitch? Refer to Aswath interview. He claims ROIC is backwards looking and not a useful metric. Moreover, for all the mumbo-jumbo on Google, it is direct investment bet on search engine and AD spending. What does that look like going forward?
“What does that look like going forward?”
That is for you to decide.
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There can be no stock discussion. We can talk about fascinating insights like sell in May and go away.
No convictions
Love it but not here
So sad
So, as an example, why is/was(last week) GOOGL a fat pitch? Refer to Aswath interview.
He claims ROIC is backwards looking and not a useful metric. Moreover, for all the mumbo-jumbo on Google,
it is direct investment bet on search engine and AD spending. What does that look like going forward?
The ad business isn’t going away.
It will have good times and bad, but the internet side of things isn’t going away either.
(I bet my future on the internet ad business in 1996, co-founder of a competitor to Doubleclick)
So, if it’s not going away, what’s a sane guess of what comes next?
Sure, the future will be worse than the past. First, a dip because some sort of economic dip seems likely, but that will be transient.
And then forward growth will inevitably slow at some point.
As they are a remarkably non-cyclical business, plain old P/E isn’t a terrible metric.
(looking at price/sales as a sanity check also helps, as their earnings vary more with what they’re doing at the moment than what the business cycle is doing)
So let’s look at earnings as a simple start suitable for fitting in a short post.
So…slowing isn’t so bad. I think earnings per share will still rise at over 10%/year in the next 5-10 years.
(past five years about 20.5%/year, consensus is more like 18% for at least the next five)
With slowing growth, we have to assume conservatively that future multiples will not be very exuberant.
Earnings are probably running at the $120/year rate at the moment.
Ten years of 10%/year growth would put that at about $311 per share, ignoring any boost from buybacks.
A multiple typical of “growth but not TOO fast” might be 19, pretty much the same as today.
(putting a ten year target of around $5900 per share, pre split)
But really, with no change in multiples, the conservative expectation from today would be a return equal to the EPS growth rate.
Around 10%/year if you use my conservative expectation, closer to 18%/year if the optimists prove right.
Downside seems negligible, given the extraordinary profitability, cash, and cash generation.
It’s one of the most profitable rent-seeking businesses in the world right now, and even anti-monopoly dismemberment would probably not hurt it too much. Just keep the pieces.
There will certainly be stocks that do way better, but how many will do better with that level of predictability and low downside?
Even if you overpay by 10-20%, it’s likely that the worst case scenario result is no return for 1-2 years, followed by excellent and safe returns thereafter.
What it has in common with Berkshire: Oceans of cash, profits, and cash generation, day in and day out, as far as the eye can see.
That puts quite the safety net under the business, though of course the stock price can do anything for a while.
Opinions differ, of course, but it’s my second biggest position now and I’m hoping to add more if there’s another big dip.
Somebody once said something about a “great business at a fair price”.
I’m cheap, so I don’t like paying 19 times earnings for most things, but I don’t mind paying 19 times earnings for THIS business.
A more self-aware prediction:
It’s likely that one of my worst investment decisions in the next five years will be to lighten up when the valuation becomes richer.
Jim
25 Likes
Great post
(or lately very specific movies,) being nice but not required, sometimes even found to be obnoxious.
60+ posts on real estate is it nice but not required?? Listening to folks landlord problems that is certainly obnoixous.
Someone indulging in that has no problem in calling out others… I think discussing movies is far better than listening to landlord issues and termite issues. Just saying.
60+ posts on real estate is it nice but not required?? Listening to folks landlord problems that is certainly obnoixous.
In case you missed it, there is an “ignore thread” button that lets you skip those threads you are not interested in. Though clearly if there were 60+ posts, some of us are interested in real estate and it is at least a form of investing, as well as in an industry that BRK participates in if only indirectly.
Someone indulging in that has no problem in calling out others… I think discussing movies is far better than listening to landlord issues and termite issues. Just saying.
And I quietly used the “ignore thread” on your off topic post, as movies almost never interest me, though they may well be of interest to others, thus courteously silent action on my part. BTW, I was referring to ALL OT threads as sometimes obnoxious, because it was quite clear you were irritated by the real estate thread, not because of your movie thread. Wasn’t calling anyone out.
IP,
wishing you a satisfying discussion on whatever you chose to post
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I suppose you can also use that right?
Kingran, I have no idea what you are talking about. Have a great night.
IP
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Alphabet is my second largest position now. Still tiny compared to number one: Berkshire Hathaway. Although I’m not convinced that’s still rational. Without getting too precise on the numbers when you strip out the excess cash:
Berkshire is around 12x and maybe takes 7 to 10 years to double earnings with a fair wind. No guarantees, as we know.
Alphabet is around 19x and maybe will double earnings sooner that Berkshire. Take your pick of likely outcomes, or combination there of:
- Continued move to digitisation leads to more and more dollars from search, the main business. Competition make no inroads.
- How does YouTube do? Probably well.
- Cloud is important. Large amounts of capital generated from search has and is going after this. Important it works. TBC
- Moon shots plus AI and big data. TBC
- Big bad recession coming in ad spending. TBC
- Profits got a temporary boost from the pandemic and could rebase substantially. TBC
As an expert on cloud computing (I’m not obviously, however will give an option) will customers switch from Azure and AWS to Google Cloud is a key question. As is the question, will companies setting up in the cloud for the first time, pick Google Cloud? Cyber security expertise, investment in hardware and super smart solutions are probably factors. I’d say Google will do well in cloud.
Big data and AI, again as an expert in this area, I’m wondering if Google might have access to more data than just about anyone else. Regulators aside, it’s not hard to imagine a tonne of profitable commercial uses.
Anyway, it’s probably not a stretch, all things considered, to predict that Alphabet will double its owner earnings sooner than Berkshire and by enough of a margin to justify the slightly higher multiple.
Berkshire has a diversification element and maybe has some growth ‘special skills and market positions’ that are sustainable for another few decades.
Google has some diversification but not like Berkshire, so maybe higher risk but the moat in search is better than most of Berkshire’s moats. This would seem to be the case, certainly for the foreseeable future. But maybe railroads and energy are still rocking and rolling 50 years from now while Google search has been bridged by the METAVERSE. Who really knows when you go that far out. However, although discounted cash flows are all but useless, they are theoretically sound and the market will notice how sustainable the moats are. Sustainability is key.
In conclusion my current thinking for me personally is:
. Berkshire is less risky and deserves a higher allocation
. I believe I understand Berkshire better
. I’m delighted to have been buying Alphabet at current prices but will add a lot more if it gets cheaper - I have cash.
. The guys on the acquirer podcast I listened to earlier, quoted someone on market crashes (which may be the only real chance Alphabet gets a lot cheaper. That and an ad recession. Or a DOJ hammer- unlikely in US) said it usually takes two thirds of the time to produce one third of the drawdown and then one third of the time to produce the final two thirds of the drawdown. Yikes! But anything can happen, obviously.
. So I continue to face whatever weather may come with a big Berkshire allocation and a growing but small Alphabet allocation (#2) and should it get cheaper, I will make it a much bigger allocation.
. But the key reason I own Berkshire and Alphabet, is I am confident that I can personally hold them for decades. A 50% drawdown will only encourage more buying. A strong case can be made that they are two companies on the high quality end of the spectrum. Quantitative and qualitative.
PS man those Alphabet financials are something else
PS 2 cool that Apple charges them $15B? p.a. to have Safari powered by Google and Apple is a big chunk of Berkshire
Enough of this nonsense. It’s bed time here in the U.K. Good luck all
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Cloud is important. Large amounts of capital generated from search has and is going after this. Important it works.
Google cloud’s strength of data, marketing and AI, is a long-term differentiator. Interestingly, they have to develop these technologies for their internal use! and then they turn around and sell them.
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Great post on Google
Has to be fat pitch in plain sight
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<‘It is like watching a plane crash’ — Michael Burry thinks the market has plenty of room to plunge. But he finally sees value in these 4 stocks>
He got it right in 2008, could be right again.
https://www.yahoo.com/finance/news/watching-plane-crash-mich…
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