Saul,
I understand that you buy companies based not on what they’re projected to do in the future, but rather the past/present (hence the 1YPEG, etc).
But why do you think you’ve done so well vs the market using this strategy? Or to put it another way, why do the stocks you buy go up?
Looking back, were the market’s estimates of their future potential just undervalued (e.g. a company projected to grow earnings 20% that actually grew them 30%)? Or did the market simply have fears that weren’t realized (e.g. a company projected to grow EPS 20% that hit that estimate exactly)? Or is it something else?
Thanks,
The Bear
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I understand that you buy companies based not on what they’re projected to do in the future, but rather the past/present (hence the 1YPEG, etc).
Hi Bear, that isn’t true. I buy stocks based on what they will do in the future. Everyone does. I just use the 1YPEG as one indicator as to how the company is priced. (I’m a bit sorry that I ever introduced the 1YPEG as so many people seem to take it as my secret sauce. I never even thought of it until six months ago or so. Before that I’d just say to myself “This company is growing fast but has a low PE”.
Best,
Saul
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Looking back, were the market’s estimates of their future potential just undervalued (e.g. a company projected to grow earnings 20% that actually grew them 30%)
That is very common. In the beginning, everyone is a doubter, how can a company grow at 50% again next year? It takes a while before there is willingness to believe and then to overestimate. This is where the meat of the money is made. Once more and more analysts jump in, the end is often in sight and the expectations get too high. The ultimate culmination of this is a bubble which we seem to see every 10 years or so now.
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