I would argue that this is simplifying the picture a bit too much. Snowflake’s company performance from late 2020 to late 2022 was stellar. The stock however fell from the mid 300’s to the mid 100’s. That’s 2 years of blistering growth, and for their trouble, investors lost more than half of their money.
That was an abnormal valuation. Some of our other companies got up to abnormal valuations in 2021. The valuations were so abnormal (there are levels to consider), that all the blistering growth in the world couldn’t save the stocks. It will probably be another year or two or more before many of them even re-gain highs, but that’s not the goal. That is simply break-even. The opportunity cost is still huge. You could have been making money elsewhere, or at least losing less.
Similarly, if stocks are now priced for less blistering growth, say 35% or 30%, but the company does very well yet only achieves 25%…what do you think will happen?
So that’s what we have to figure out: what’s expected, and what will actually happen.
Valuation is always a judgement call, more art than science. The trick is to find companies that are going to do better than expected. When expectations for a company just continue to improve and improve, its stock will do phenomenally. When expectations come down, the stock will suffer phenomenally.
This is all part of Saul’s method:
Bear