Old thread revisited

This post belongs on this board but the original thread was posted on the Berkshire board in 2014:
https://discussion.fool.com/iv10price-update-31317772.aspx

I was re-reading this thread from 7/2014. Although it has only been 7.5 years, not 10, it is interesting to see where we are today and re-examine some of the original assumptions with an eye to fine tuning future assumptions. Any retrospective thoughts?

Today:
MKL 1254.75 (up from 649)
APPL 172.17 (up from 95)
GOOG 2740 (up from 578)
BRK-A 480,000 (up from 192,400)
SPY 466 (up from around 193)

So 7.5 year performance GOOG>>BRK>SPY>>MKL>APPL

Smufty

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There is a mistake with the Apple number. Original post said price = 95, but was likely 25

So Apple now 172.17 (then 25) making it by far the best performer of the group

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APPL 172.17 (up from 95)

(I assume you meant Apple. Symbol AAPL.)

AAPL, a current (happy)hold here, the numbers caught my eye.

AAPL back ~8 years ago =~ $20
Now: =~$170
Gain =~ >8X

Am I wrong?

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AH!

Too late I spotted your self-correction.

Too fast on my reply trigger here!
BB

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Manlobbi included CBI on his high IV10/Price list a while back.

Apparently he thought the company was “steadfast”.

CBI ended up in the dustbin of history.

Picking a company that is steadfast (having a large impenetrable moat) can be hard…even for Manlobbi.

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Yep, equally hard is guessing 10 year out intrinsic values. Particularly when you are stating them as inflexible fact down to the 10th’s of one percent.

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First of all I would like to thank Manlobbi for his contributions and having the guts to start his own board. Rather I use his advice or not is up to me. We can’t all belong to the Beardstowns Ladies investment club.

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The most important thing is the concept. “Steadfast” and “IV10” emphasized predictable growth and that’s very important in the time of Internet, when network effect could propagate quickly and cheaply. In applying the concept, no one can be perfect. Even Buffett still made mistakes in the past ten years: IBM, airlines, Precision Castparts. Good concepts can help catch some really big ones.

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SPY has been a phenomena for the past 1-2 decades that does not always make sense to me other than the millions of buy and hope investors who every month have money dumped into their company 401K plans with limited choices but always an index choice. They do not watch the markets, value companies, or pay any attention to their investments other than to contribute month after month.

So ignoring the S&P 500 and looking back, I am more interested if there are new thoughts about how the IV10 was arrived at for the other companies. Would any different approach to IV10 made the
AAPL>>GOOG>>BRK>MKL result the prediction rather than MKL>>BRK>GOOG>AAPL which was the original prediction?

Smufty

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I think there is a clear presence of a personality type involved with detailed writing, abosolutes of outcome, and detailed piano composition and playing. None of which in itself is good or bad, but it is what it is.

I know that over on the Berkshire board we have a far less extreme but clear leader as to popularity. On both boards readers may want to accept the obvious that detailed writing and detailed specific outcomes are that of specific personalities, not necessarily reality. Although the leader on the Berkshire board gets Berkshire right based on a very elementary price-to-book model, the other presentations from the same expertise are far less accurate, basically some up and some down, but far from the predictions which are less absolute than this board.

We have a bunch of steadfasts that have plummeted now- we will see in the longer term. I do know the steadfast writing never stopped on BPY even when the outcome became clear that the formula/model was off by literally hundreds of percent. Again, is it rational or is it simply a default mode of a personality type?

I think there is a clear presence of a personality type involved with detailed writing, abosolutes of outcome, and detailed piano composition and playing. None of which in itself is good or bad, but it is what it is.

You’d be surprised. With my formal background in mathematics and logic and interest remaining there, this possibly makes some sense. But with primary work as a composer, it is quite the opposite of what you describe. In this art, there are nearly always absolutely no absolutes of outcome, and during the main work you are constantly in a state of chaos. You have to introduce order, but working within chaos is the main atmosphere you are faced with. I’m holding back here also – sometimes I go as far as describing it as staring into an empty black void for hours, though there are usually colourful sparkles of ideas that begin to circle. It is far from working with absolutes though.

On the subject of investing, it is precisely in accepting that investing is a chaotic venture, that the book Manlobbi’s Descent was written. Rather than pretending it is an orderly process, it describes over many pages why it is just the opposite. It is in response to that, that the book describes an unusual mechanism to identify the few littles stars in the cosmos of opportunities that actually have predictable outcomes. That isn’t because investing is orderly, but precisely because it is highly random and disorderly, so we try to to create a realistic means of seeking more predictable market-beating long-term returns.

Would any different approach to IV10 made the
AAPL>>GOOG>>BRK>MKL result the prediction rather than MKL>>BRK>GOOG>AAPL which was the original prediction?

There are other approaches of course that did well recently - two years ago you did incredibly well by buying anything that was double its sales each quarter regardless as to the price, and this year you will have done well holding Berkshire Hathaway. But the Manlobbi Method is designed to give good results over 7+ year periods, and I consider returns over one year as more or less random as to happens to work well, which can only be done with hindsight.

And to set the record straight, CBI was not Steadfast, with my posts going as far as prefixing “Without establishing Steadfastness, etc” just to make that clear. It took a position, but at very low price and the “trades” were profitable. It was more of a Ben Graham approach, where the entry quotes were critical. Recent posts detailing this:

Did you quote “MKL>>BRK>GOOG>AAPL” as some past expected outcome? If so, please quote correctly. MKL received only benign IV10/price ratios in recent years so I have stayed way, and similarly as for Apple. To be precise I held Markel in a very high concentration from early 2011 (when the price/book was 1.0x and the IV10/price was over 4.0) and sold it entirely in 2017 (when the IV/price was in the low to mid 2s). I was jumping up and down about Apple mostly around 2016 when I did a series of 4 articles for TMF about Apple as the best opportunity I could find, however last year the IV10/price ratio for Apple was significantly lower than Google.

At it happens, Apple outperformed Google over the last 12 month period. Here is what is important here: In investing, a 12-month or even 24-month performance result (regarding the change in quote) is a result of gambling outcome, not investment competence. In this light, I also expect Google will outperform Apple as the years ensue, matching their relative IV10/price ratios.

Google has become increasingly attractive to me having studied their marketing software more carefully. The more I study their software, the more it appears surprisingly ineffective. For owners, this sounds like bad news, but I see it is profoundly good news. As the advertising methods become increasingly more efficient (with a very long runway ahead) in providing a higher return to advertisers in relation to advertisement views, auction prices will rise. That is because of the competitive nature of advertising; advertising budgets are not fixed, but related to how they produce sales - if improved targeting allows the advert to produce twice as much sales, the competitive pricing for the same advertising will double (and so revenue to Google doubles). I still view online advertising as fairly primitive, and in its infancy. I like to imagine looking back at 2022 (will will appear relatively undeveloped) from 2032, similar as we look back at 2012 from today (and how undeveloped advertising was then).

Google then has two major goals of interest to investors:

  1. Create more application use (number of users) x (hours spent online). That requires new niche applications. For example, similar to maps and shopping searches in the past, more niche searches that become so useful as to be almost unavoidable by users.
  2. Help businesses get in touch with the public using these applications far more efficiently than presently in 2022, which is almost laughably bad right now.

As 1 and 2 improve, they are fairly (not entirely though) independent and multiplicative, so if both 1 and 2 doubles, the aggregate result for advertising revenue is a quadruple.

– Manlobbi

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