A thread on price
1. I've found the rule of not allowing people to say a company is cheap/expensive based on multiples is useful in removing our bias in conflating valuation with multiples. It is key that we must remain agnostic about multiples because multiples don't determine
1. I've found the rule of not allowing people to say a company is cheap/expensive based on multiples is useful in removing our bias in conflating valuation with multiples. It is key that we must remain agnostic about multiples because multiples don't determine
2. if something is cheap or expensive. It is expected future cash flow generated discounted to the present that determines cheap/expensive. So something is not expensive just because it has 100x pe. Something is expensive when it's expected future cashflow generation is
3. going to be below what 100x pe is implying. I'm sure most of you know that already, but the latent bias built from the graham days PB quantitative investment style is hard to rid. The rule helps.
Similarly, the historical price movement does not determine cheap vs expensive
Similarly, the historical price movement does not determine cheap vs expensive
4. all of these are biases built into our mind from historical experience. But it is not necessarily right. People saying that FAANGs are now expensive after big moves up are again reinforcing a bias by conflating price moves with value, which again doesn't help us think clear
5. & make good decisions. Forcing people to say expensive/cheap only with justification on what price is implying on growth/FCF helps with accountability & ridding lazy thinking. Saying i don't know on 95% of names should be the way to go in reducing bias/keeping an open mind
It is ok to have not done the work, it is not ok to use the lazy mental short cuts
