The Superinvestors of Graham-and-Doddsville (1984) • Hacker News Board

Re: The Superinvestors of Graham-and-Doddsville (1984)

#11

Post by starpilot » Tue, Aug 14, 2018, 6:06 PM UTC

lixtra wrote: post #7

acconrad wrote: post #4

I belong to a fair number of value investing forums and made money off of the strategy for a while. Here's why I think this no longer works in the traditional sense and what works now: The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it's probably a value trap. So where can you find value? Where the above things are not present. Quants wor…

I disagree. Remember the big Apple plunge a few years ago? Or Macies about a year ago? Or Sodastream a few years ago? I find a reasonable opportunity about once per year. But I still lack the balls to go into these with huge amounts. (Currently considering LB, if you ask).

"It's one thing to know it's going to rain. It's another to build an ark."

I'm still working on getting the balls to short some housing stocks for the burgeoning correction. It might be too late though. LEN KBH DHI TOL

Re: The Superinvestors of Graham-and-Doddsville (1984)

#12

Post by colossal » Tue, Aug 14, 2018, 6:08 PM UTC

mxschumacher wrote: post #6

acconrad wrote: post #4

I belong to a fair number of value investing forums and made money off of the strategy for a while. Here's why I think this no longer works in the traditional sense and what works now: The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it's probably a value trap. So where can you find value? Where the above things are not present. Quants wor…

I'd still argue than metrics like EV/FCF give some indication of valuation / risk. Balance sheets become less meaningful going forward. Google's greatness is not to be found in its physical assets.

In my completely amateur opinion, that is the one major reason why value investing is so much harder today. When Graham and later Buffett were executing this strategy to enormous success, most of a companies valuation could be traced back to it's assets -- excluding intellectual property. Now that IP is such a large part of valuations, it's much harder to execute this strategy because IP is inherently harder to valuate than tangible assets. And consequently, it's much more difficult to accurately access the difference between price and value.

Re: The Superinvestors of Graham-and-Doddsville (1984)

#13

Post by matthewwiese » Tue, Aug 14, 2018, 6:09 PM UTC

acconrad wrote: post #4

I belong to a fair number of value investing forums and made money off of the strategy for a while. Here's why I think this no longer works in the traditional sense and what works now: The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it's probably a value trap. So where can you find value? Where the above things are not present. Quants wor…

> Japan comes to mind as a hot spot for value

I'd be interested in learning more about this, even if just for the sake of a hobbyist's fascination in stock markets outside of the U.S. Are there any resources you'd suggest for somebody who has amateur interest in value investing but without a lick of Japanese language & cultural knowledge?

> To be demonstratively good at value investing time and time again requires robotic levels of dispassionate patience

There's a good sci-fi short story buried in this somewhere... Stock Runner, perhaps?

Re: The Superinvestors of Graham-and-Doddsville (1984)

#14

Post by [deleted] » Tue, Aug 14, 2018, 6:10 PM UTC

lixtra wrote: post #7

acconrad wrote: post #4

I belong to a fair number of value investing forums and made money off of the strategy for a while. Here's why I think this no longer works in the traditional sense and what works now: The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it's probably a value trap. So where can you find value? Where the above things are not present. Quants wor…

I disagree. Remember the big Apple plunge a few years ago? Or Macies about a year ago? Or Sodastream a few years ago? I find a reasonable opportunity about once per year. But I still lack the balls to go into these with huge amounts. (Currently considering LB, if you ask).

[deleted]

Re: The Superinvestors of Graham-and-Doddsville (1984)

#15

Post by rubidium » Tue, Aug 14, 2018, 6:27 PM UTC

Timely, as I am just finishing a study of Buffett. Some additional recommended reading about/by Buffett:

Buffett's bio by Lowenstein, "Buffett: Making of an American Capitalist".

A collection of Buffett's writings in: http://www.monitorinvestimentos.com.br/download/The%20Essays...

Re: The Superinvestors of Graham-and-Doddsville (1984)

#16

Post by adventured » Tue, Aug 14, 2018, 6:39 PM UTC

starpilot wrote: post #11

lixtra wrote: post #7

Earlier quoted context omitted.

I disagree. Remember the big Apple plunge a few years ago? Or Macies about a year ago? Or Sodastream a few years ago? I find a reasonable opportunity about once per year. But I still lack the balls to go into these with huge amounts. (Currently considering LB, if you ask).

"It's one thing to know it's going to rain. It's another to build an ark." I'm still working on getting the balls to short some housing stocks for the burgeoning correction. It might be too late though. LEN KBH DHI TOL

Or two years too early. That's always the question.

In favor of it already being too late: TOL is back to where it was six years ago, with three times the sales now vs then, and for practical purposes infinite more profit (they only finally got back to profitable in 2Q12). What would the short thesis be against that setup? It certainly does look like a lot of downside is built in now. Meanwhile HD is trampling estimates.

We've got no inventory build (the exact opposite, a painful dearth of inventory). The job market is extremely strong. Mortgage defaults aren't soaring. Household debt isn't soaring. A value stagnation (wages aren't rising fast enough) looks like the most likely bad scenario for now, instead of a meaningful correction.

Re: The Superinvestors of Graham-and-Doddsville (1984)

#17

Post by bunderbunder » Tue, Aug 14, 2018, 6:49 PM UTC

acconrad wrote: post #9

lixtra wrote: post #7

Earlier quoted context omitted.

I disagree. Remember the big Apple plunge a few years ago? Or Macies about a year ago? Or Sodastream a few years ago? I find a reasonable opportunity about once per year. But I still lack the balls to go into these with huge amounts. (Currently considering LB, if you ask).

The same could be said for Facebook. What you're referring to is an irrational market responding to news and creating a sale on an asset. "Facebook on discount, buy now!" If you bought at the nadir of the $FB dip you'd already be up 7% right now. Yes, those things do exist, that doesn't mean those companies are value stocks. Facebook is still trading at a P/E ratio of 28, and an EV/EBIT of 20, both of which are high.…

Curious, how often is it even possible to evaluate a company using Graham and Dodd's methods these days? I haven't read much of their work, just The Intelligent Investor, so there's a lot I don't know. The difference in P/E ratio standards they talked about struck me, yes, but even more than that, I am unsure of how to translate a lot of their ideas about how you limit your potential losses into the modern economy.

Back when companies tended to have a lot of physical assets (relative to their overall value) that tended to depreciate slowly, that might have been easy to calculate. For a company that participates in the information or service economy, though, virtually all of their value is tied up in intangibles, and about the only physical assets that are likely to have any value at all after a few years are the office furniture.

Re: The Superinvestors of Graham-and-Doddsville (1984)

#18

Post by adventured » Tue, Aug 14, 2018, 6:56 PM UTC

mxschumacher wrote: post #5

A good read in a time when the valuations of Netflix, Amazon, Tesla etc are extreme by conservative investing standards. Many famous value investors such as Bill Ackman, Bruce Berkowitz and David Einhorn have been getting absolutely killed in the market in the last several years. It is difficult for me to imagine that this pendulum will never swing back. The combination of oligopolistic technology firms (platforms!),…

To be fair, Ackman got absolutely killed for going deep into VRX. The exact opposite of what a value investor should have done, as VRX was anything but a value play at the time. His big CMG position by contrast is well above water.

Re: The Superinvestors of Graham-and-Doddsville (1984)

#19

Post by JumpCrisscross » Tue, Aug 14, 2018, 7:03 PM UTC

acconrad wrote: post #4

I belong to a fair number of value investing forums and made money off of the strategy for a while. Here's why I think this no longer works in the traditional sense and what works now: The rise of quants, ETFs, and instant information has largely arbitraged away value mispricings. So if it looks like a bargain, it's probably a value trap. So where can you find value? Where the above things are not present. Quants wor…

> you've researched something so much you're biased to believe it working since you've sunk so much time into it

I always keep a null hypothesis handy. (Usually an index fund.) I’ll research my targets alongside the fund(s).

Re: The Superinvestors of Graham-and-Doddsville (1984)

#20

Post by imjk » Tue, Aug 14, 2018, 7:15 PM UTC

mxschumacher wrote: post #5

A good read in a time when the valuations of Netflix, Amazon, Tesla etc are extreme by conservative investing standards. Many famous value investors such as Bill Ackman, Bruce Berkowitz and David Einhorn have been getting absolutely killed in the market in the last several years. It is difficult for me to imagine that this pendulum will never swing back. The combination of oligopolistic technology firms (platforms!),…

I thought Bill Ackman was more of an activist investor than a value investor (not that they're mutually exclusive labels). I don't know about the other two.