Valuing fast-growing companies is, indeed, hard. Having come to similar conclusions myself, I like Bear’s thought trail here.
For me, discussing the valuing of fast growers also ties in with the recent discussions of “conservative vs.
aggressive” investing. Someone thought people here were crazy. (Heck, I could have told them that.)
Being a story AND numbers guy from a architecture/construction/design background, my analysis of any
investing candidate includes many spreadsheets and calculations. To clue you into the depth of these,
I’ve built a template that brings up instant and complete financial statements for 8 quarters and 5 years.
Enter any of ~7,000 tickers, and voila’! Instant financials plus % change. Then I tear them apart and
calculate relationships between various entries over time to (hopefully) answer all my questions and
concerns, maybe even garner a little insight. With a little common sense thrown in, it becomes possible
to make some projections into the future. Sometimes even reasonable projections. This is nothing new
of course. Lots of investors do something similar and of course many do much more in-depth digging
and researching before considering making any investment.
But what happens when these methods meet Mr Rocket? A company (new-ish) growing at 40%-+. What
if Mr. Rocket is growing at 40%-+ this quarter but at 32% the previous quarter and 26% the previous
quarter, etc., and has projected greatly increasing growth in the quarters ahead?
We just broke the model for many numbers-based investors. Maybe that’s rightly so too. Who wants to
count on 50%+ growth and increasing steadily beyond today? If we’re that brave (dumb?) then how far
are we willing to carry out that projection? How far would it have to go out to become unreasonable to
any sensible train of thought? How long until it became mathematically impossible? And somewhere in-
between the extremes, the answers will likely seem like pie-in-the-sky assumptions, translated by many
hard-core numbers-based investors as investing based on “hope”. No one should be basing their
financial health on hope alone. Ask me how I know.
But we do know, especially here, that a few companies battling in high-growth businesses today
will become the high-profit monsters in the future. Our goal, which also separates us from many
a hard-core numbers investor, is to catch some of those companies in early flight. Not an easy task, but
not nearly as impossible as some large-cap, blue-chip-only investors believe.
I don’t belittle the people who laugh at you, or Saul, or me, or any of us here. I get it. Sure, I kind of wish
they “got” what we’re doing too. But my happiness and success don’t depend on it at all. Also, I
understand their negativity for companies like the ones I own. When I missed out on Amazon and lost
(lost!) several times investing in Netflix, it became increasingly tempting as time went by to say their
valuations were ridiculous. (Maybe they were, but the bottom line is I wish I owned them from day one
In the end, success matters. Profit matters. But also humility matters. Sharing matters. Learning matters.
And most of the time, numbers matter too. But there are some companies whose numbers are already
stretching our experience toward the limits. . Now we endeavor to make projections for those
companies into the future, and occasionally even dare to increase the already unbelievable growth in
When I first considered switching to super fast-growth investing, one of the first things I realized was
that my hard-won and printed-in-stone requirements for the numbers to work with very cautious,
conservative projections, would have to either be greatly revamped, or they would simply have to go. I
still run the numbers; I still require proof that success is likely if my projections are not completely out
Maybe it would be easy to laugh at nay-sayers when we’re up 60% (or 75% or 100%) in any year. But if
those kinds of gains are precursor to the ribbing, we should realize that we haven’t always had (nor will
we always have) those kinds of gains. Duh. We might consider keeping this in mind when dealing with
So I choose not to laugh at my fellow investors who are riding a different path. But growing wealth by a
considerable margin YTD, I have no trouble finding something else to smile about, and sometimes that
brings about a laugh or two. I can’t help it. If someone in the “conservative-vs-aggressive” discussion
misinterprets my laugh, they don’t read here and they don’t know me. At least one of those is their loss.