In their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed If You Were Born 15 Years Later Would You Still Be A Value Investor. Here’s an excerpt from the episode:
Tobias: I’ve got a question here. JT and I’ve talked about this a little bit but interested to hear what you think that. If you’re born 15 years later, would you still be value investors?
Jake: Probably not.
Tobias: I’ll say this, I discovered value investing in the late 1990s and it was a full-blown tick. Similar to what we had last year, I guess, when dotcoms were teeing off. That didn’t make any sense to me and value made sense to me. So, yes, I certainly would still be, because 15 years later probably coincides with this current dotcom 2.0.
Jake: I think I would have also, just because, my whole life up until I knew even what value investing stood for, I always liked getting deals on things, and I hated paying retail. I was always looking to arbitrage something and feel like I was getting away with something. I always probably would go more towards cheaper than quality in whatever I was doing. When I heard it described as doing that same idea, but for the partial ownership of businesses, it just made perfect sense to me right away, that inoculation took. So, I think I still probably would have fallen into the value bucket, even if it was 15 years after.
Tobias: I don’t think Graham necessarily defined value as cheap. What I got from reading the Intelligent Investor was that you should approach it in this sort of business-like fashion, you should approach it like you’re looking– you’re not trying to buy cool products or cool companies, you’re trying to buy streams of cash flows.
Jake: Did he actually say dog shit?
Bill: Yes, but dude-
Tobias: Did I say that? [laughs]
Bill: -then everybody says the cheap. If I offered you a Ferrari, like an F430 at 100 grand and it was mint, most people would agree that’s value, but for some reason, most value people are like, “No, I want the Pinto for two grand.”
Bill: Okay, but really rich stuff can also be value. But then when you pitch that, people are like, “Oh, you’ve abandoned your roots.” It’s like, “No, I just think that’s good value.” Scarcity accrues value over time, scarce assets tend to trade at higher multiples, you can find value at higher multiples. God forbid, you say that. People are like, “Oh, did you even read, dude?” Yeah, I did.
Tobias: Then, Buffett says that too. Low multiples aren’t necessarily value and high multiples aren’t necessarily expensive.
Bill: Yeah, well, people might benefit from listening.
Tobias: The problem is that– the difficulty is this, when you look at the cohorts of stocks, the cheaper cohorts do tend to do better than the more expensive cohorts, but the lottery tickets come out of the most expensive cohort. If you’re the kind of guy who can go through the most expensive one and pick out all of the Shopifys and the Amazons and Micro– well, not Microsoft, because it was cheap, but anything out of that group, and you can identify the ones that are winners, then you are well and truly paid to do that. If you’re not able to do that, and I’m not able to do that, then you need to be going through the stuff where your base rates a little bit better.
Bill: Dude, you say that, but I bet that the strategy that you’re thinking of running on the side where you’re the invincible investor, where you are waiting for temporary hiccups in moaty businesses, I bet you could run that.
Tobias: Yeah. I think so.
Bill: This is basically rule one stuff. I’m just not sure that I’m fully on board with the bet size that he preaches.
Tobias: The only thing that I would say to that is, this is what I’m trying to talk about it now. How do I avoid stuff like the for-profit colleges? I just don’t have a rule for avoiding that stuff.
Bill: I think something that I’ve learned from Elliot and McMurtrie a little bit is they like to talk to people that are short. I think both those guys are good at understanding the case against what they own. I think if you really force yourself to write that out and to say, “Okay, well, how would I argue the short side of this?” I think that might be a good exercise-
Tobias: That’s fair.
Bill: -and make yourself– not even just a premortem, no. If I would short this, why would I be short? What would I be looking at that would make me not like this?
Jake: I think Amazon or something, you could have written a very compelling short of Amazon for multiple years. It almost went bankrupt a few times. It’s not like it was even– this isn’t a hypothetical, and yet, there’s these survivors that turn into these absolute monsters. I don’t know, it’s really hard.
Bill: Yeah. Dude like Nick Sleep probably knew that short case and didn’t think it was right. Maybe Nick Sleep isn’t quite the investor that everybody thinks he is if AWS doesn’t come out, but he probably still retires.
Tobias: You could have bought a cheap, too, it fell 94% from– it’s fallen 90% plus a few times, like you got it in the early 2000s down 94%, maybe you’re just like, “This thing is better than it looks here, and I’ll just grab something here.”
Bill: Yeah. David Gardner–
Jake: [crosstalk] -see what the metrics look like though at that point. What were you actually preparing– [crosstalk]
Bill: [crosstalk] -any of us would have seen it [crosstalk] e-commerce bookstore would have been like Barnes & Noble is going to kill that– [crosstalk]
Jake: What was the cheapest, it’s ever traded on price to sales or something– [crosstalk]
Tobias: I’ll pull that data up, and I’ll tweet that out in a moment.
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