Tuesday, 29 May 2018

New valuation metrics for tech companies, and Spotify

There is a very old saying in markets - that the four most dangerous words in the English language are 'this time is different', and that is particularly true when the bulls start advocating for the use of new valuation metrics over tried and tested favourates, as prices outrun anything remotely resembling what can be justified by the old. This sort of soothsaying is long discredited for good reason - is has often accompanied major market tops, and been revealed to have been folly in the cold, sober light of the ensuing bust.

Monday, 28 May 2018

Why value investing works and will continue to work

I am often asked why I expect value investing (traditionally defined as focusing on buying sectors of the market trading at relatively low multiples of earnings, assets/book value, and cash flows*) to continue to 'work' in the manner it has historically, given that we now live in an age of advanced computing power and widespread information dissemination. Surely, it should be a simple matter these days for algorithms to screen for quantitatively cheap stocks and buy them up, quickly arbitraging away any excess profit opportunity. Low multiple stocks must now all be ones fully deserving of such a low rating, and the opportunity which existed in the past in Ben Graham's day was a function of highly inefficient and unsophisticated markets, and is thus no longer relevant.

Friday, 18 May 2018

Gold's hidden risk

Gold has been a longtime investment favourate of many investors, despite its lackluster long term track record,* and not just for perpetual merchants of doom, who view the shiny metal as an attractive call option on financial disaster. Joining their ranks are a number of 'value' investors that have promoted and owned gold in the post-GFC era, with the bull case usually centering around the metal being a hedge against hyperinflation or other unintended consequences emanating from experimental central banking policies seen in the post-GFC period. Reference is also often made to the significant underperformance of gold over the past decade vis-a-vis central bank monetary base expansion.