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We've discussed before, in this feed and in the main PIB publication, the concept of "neo-value investing," defined as "the effort to apply the principles of value investing to newer, faster-growing, often tech companies." And when I speak of the...
..."principles of value investing," I mean things like a long-term time horizon, a very strong emphasis on the safety and certainty of a forecasted outcome, and upside expectations that are ambitious, but not at the expense of safety and certainty. Now then, it seems to me...
...that if you wish to succeed as a neo-value investor, you must acquire some expertise in and appreciation for "neo-value capital allocation"—that is, in whether the individual capital allocation decisions made inside companies themselves conform to the principles of value...
...investing. Not too many tech companies publicly frame their capital allocation decisions in term of value investing principles—many indeed go the other way and openly espouse a "moonshot" mentality—so when it does happen it sticks out, even if it's just a little nugget of...
...information. Here's one little example: Majestic Wine's Naked online wine retailer claims to recover 80 percent of its customer-acquisition-cost outlay in just one year—on its way to a four-for-one return on the CAC over ten years...: ft.com/content/81eca6…
The four-for-one part represents the upside of course, but the 80 percent part can be seen as providing some measure of downside protection and margin of safety, since it reduces the uncertainty of the outlay and greatly improves the company's ability to respond to changing...
...conditions without over-investing—the opposite of the moonshot mentality. Anyway, I find this all very interesting, and pledge to keep an eye out for more examples of this neo-value capital allocation.
