Where the Money Is: Value Investing in the Digi

“Where the Money Is: Value Investing in the Digital Age,” by Adam Seesseel, Avid Reader.

This book was reviewed in the Thursday, June 2, Wall Street Journal.

https://www.wsj.com/articles/where-the-money-is-review-an-ey…

The review maintains value investing has passed through three phases. Phase 1 was Benjamin Graham’s style of recycling cheap stocks. Phase 2 is Warren Buffett’s focus on business quality (and moats to protect the business). Currently we have Phase 3 which now incorporates business quality, management ability, and price. This template found that 90% of the stocks that fit are tech stocks.

Mr. Seesseel includes earnings power in his method. Amazon is a key example. It’s PE is 10 times that of other stocks, but its earnings have out performed the market by a factor of 300.

Looks like an interesting read.

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The review maintains value investing has passed through three phases. Phase 1 was Benjamin Graham’s style of recycling cheap stocks. Phase 2 is Warren Buffett’s focus on business quality (and moats to protect the business). Currently we have Phase 3 which now incorporates business quality, management ability, and price. This template found that 90% of the stocks that fit are tech stock.

Progress happens! The WSJ is behind a paywall so I didn’t get to read the review but I entirely agree with the premise that “investing has passed through … phases.” There is one thing that will never change which is at the core of value investing,

“From a long-term perspective, a security is nothing but a claim to a future stream of cash flows that investors can expect to be delivered over time.” John Hussman

At METaR I posted a piece on why discounted cashflow, while in theory still perfectly valid, is no longer of practical use for investing in stocks and mentioned some other tools that are more appropriate.

Just as there are laws of physics there are laws of Complex Systems. While not as precise as the laws of physics (if you exclude the uncertainty principle) these laws help structure one’s thought process. They help in breaking the habit of linear extrapolation – the future does not develop evenly but by spurts some of which are expected.

Some people still think that investment funds underperform because of fees or because their objectives don’t match their client’s objectives. While there might be some truth to these claims there is a Law of Complex Systems that explains why most funds (75%?) underperform the market averages, the Power Law Distribution or Pareto Distribution. To beat the averages you have to be either lucky, very talented, or both. The odds are simply against the majority.

Another Law of Complex Systems helps to distinguish between value and growth investing, the Sigmoid or “S” growth curve. Traditional value stocks belong to established businesses that exhibit mostly vegetative grow, they grow in line with population grow which tends to single digits and can be ignored. Growth companies exhibit triple digit growth spurts, 100% growth some years. As a recent example, in 2021 Tesla increased EV sales by 80% and Net Profit by well over 100%. Traditional value metrics can’t deal with this kind of execution. You need a new set of investing tools to deal with it.

https://discussion.fool.com/charts-of-previous-bear-markets-3512…

Denny Schlesinger

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Denny:

1 Enjoy reading your posts

2 A DCF capture Kurzweil’s law of accelerating returns, Moore’s law, Metclafe’s law, Murphy’s law, step functions, pricing power, S-curves, winner-take-all, ecosystems, moats, etc., IMHO. You just have to enter the correct numbers initially, and then update the DCF as new facts and opinions emerge.

Hewitt

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You just have to enter the correct numbers initially, and then update the DCF as new facts and opinions emerge.

Easy as p! LOL

BTW, Kurzweil showed that Moore’s law was in effect a long time before they invented the transistor, back when they were making mechanical calculators, The Age of Spiritual Machines

The Age of Spiritual Machines: When Computers Exceed Human Intelligence by Ray Kurzweil

https://www.amazon.com/Age-Spiritual-Machines-Computers-Inte…

The Chart!

https://www.youtube.com/watch?v=-inK0esaIgk?t=470s

In the book he goes back further to the Charles Babbage

https://www.google.com/search?q=babbage+computer&newwind…

Denny Schlesinger

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Denny,

Thanks for sharing this link on Babbage.

His computer’s myriad moving parts reminds me of Eli Whitney’s cotton gin, another example of impressive thinking in 3-D.

Hewitt