Logical Conclusion of Fundamental Analysis is a Hold Forever Period

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and Brewster discussed Logical Conclusion of Fundamental Analysis is a Hold Forever Period. Here’s an excerpt from the episode:

Jake: Okay. Second item to note from Kevin’s paper is the logical conclusion of fundamental analysis is a hold forever period. How he gets there is, if you think about a lot of times when you’re buying something and you’re planning on holding it for, let’s say, one year to three years, you’re still making a bet that there are going to be other people who will think good things about this company in three years when you want to go sell it. That has really nothing to do with fundamentals necessarily. Like, you’re betting on sentiment. You’re betting on a mean reversion of the business and the sentiment, one of those combinations. Go ahead, Billy.

Bill: This is true.

Jake: Well, there’s no guarantee that you’re going to get it on that timeline that you’re asking for. So, you are depending on the kindness of strangers on that one year to three year time, right?

Bill: Yeah-ish. I guess, what I would maybe think in my head, which is dumber than Kevin’s, but is that you should only buy things that you are willing to hold forever? But I don’t know. I do think this is the risk and IRR driven pitches that rely on multiples going up. I think that does rely on the kindness of strangers. But if you have an underlying business and you have a three-year view, I don’t think it’s totally irrational to say like, “I can’t forecast 10 years out. I do think I can go three years out. So, that’s as far as I’m going to go.”

Jake: Yeah.

Bill: I guess is the only thing that I’m thinking.

Jake: Kevin has the pretty good line where he says, “Listening to some value investors, you get the impression that you can send your DCF spreadsheet to the New York Stock Exchange. And as long as the math checks out, you get to sell at that price.”

Bill: [laughs] I like that. That’s funny.

Jake: If your goal is to stay within fundamental analysis, then maybe you do have to be willing to think a little bit more and never sell terms, I guess, and have that long timeline. And there’s certainly I can personally attest that these things take much, much longer than you would ever sometimes imagine. It’s probably just important to ask yourself before you make an investment, like, how long are you willing to wait in these situations and maybe setting a shot clock on that?

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