In his recent interview with Kiana Danial, Guy Spier discusses why value investing, or as he puts it, intelligent investing, will never die. Here’s an excerpt from the interview:
Spier: Value investing is not dead. Intelligent investing is not dead. To just go into it in a little bit more detail.
Intelligent investing, and I would say value investing, is looking to the asset to deliver a return to you. So if I buy a farm I can think about what crops I will grow on that farm and what I might be able to sell them for. And it is those crops being sold from the farm that will deliver my return. If I buy a property to rent out I can look at the rental income I can get from that property.
But the key about those kinds of assets is that they have an intrinsic value, they generate cashflows. And then there is ‘greater fool investing’ or maybe what we might be called growth investing where you’re not really looking at what you can get out of the asset, you’re looking at what someone else might pay you for it down the road. That is what I would either call momentum investing or many different words for it.
If I buy Bitcoin I don’t really know how I can earn a return on the asset because you can’t grow crops on Bitcoin, you can’t rent Bitcoin out and have somebody live in it. So the only way you can make a return on that is by selling it to somebody else. Similarly, just to name a company out of thin air that I looked at for half a millisecond is a company called Snowflake. I just looked to see that Snowflake was trading at more than one hundred times revenues.
So if I look at Snowflake as a kind of a farm, how much crops can I grow out of this Snowflake asset. So yes Snowflake will grow, somewhere they might have earnings, but I’m paying an awful lot. It would have to grow enormously for me to earn a return on my investment. That will never be dead. The market goes through periods, and we’re clearly going through a period right now where people seem to forget that. And people that haven’t forgotten that are made to look increasingly stupid, and that’s ok.
So people like me are looking very very stupid, and might look even more stupid until this period ends. We don’t know when it will be but I can promise you this Kiana. It will come to an end.
Kiana: The period where everybody is interested and hyped up…
Spier: There’s no time in history that that’s ever lasted forever. And every that it happens people think it will last forever, but it won’t.
You can listen to the entire interview here:
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