Value is in the Eye of the Beholder

I love this sub. I get a lot of value out of reading other’s thoughts, and from time to time I have made my own posts. I try to make my comments to others be direct while helpful, and although tone can not be conveyed through text, I believe I should clearly state that never and I mean never do my comments care any tone or meaning except that of spirited discussion (well…we are all human so occasionally it may get heated. But that is the exception…and it happens to all of us)

That being said:

The title of this post says it all: Value is in the eye of the beholder. What do I mean by that?

Everyone one of us humans view the world through our own lenses, which are sculpted and polished by our genetic traits (parts of our personalities passed on by our parents), and our experiences (what we personally have lived through and what we have learned from those experiences).

Some may quote Buffett, some may quote Munger, some may cite Benjamin Graham. Browne, Greenblatt, Pabrai, Miller, Marks, Klarman… all of them are generally labeled as “value investors” by most of us (with Miller somewhat debated).

But what about Lynch or Ackman?

Ignoring performance and focusing on philosophies:

Lynch was the inventor of PEG (or at least popularized it). Labeled as the “Growth at a reasonable price” investor. Does the fact that he includes growth in his determination detract from the worm he does in his fundamental analysis?

Ackman is extremely “value” focused on his analysis, but is much more activist in his style, which Buffett was not. Does that take away from his “value” approach?

We need to stop being so STUCK in what we think of as “value investing”.

Value is in the eye of the beholder!

What do all of these investors have in common? They utilized frameworks, philosophies, and mental models to structure their investing processes in such a way that they determined gave them an edge. That’s it. All of them had the exact same over-arching goals.

“Value” = discount to intrinsic value “Growth” = an input intrinsic value

“Value” ≠ Low P/E “Growth” ≠ High P/E

The Graham / Buffett / Munger cohort found an edge based on asymmetric data access and understanding. Before computers, instant stock quotes, and broad dissemination of financial results, they could do the work to identify companies trading at a discount (or on par) to intrinsic value (or tangible book value) and profit.

In an age with instant access to almost any financial data / ratio / analysis of any public company you could think of… this information arbitrage can not simply be based on ratios and growth rates. Market dynamics have changed. Players have changed. Rules of the game have changed. Information access has changed.

This doesn’t mean you can’t adopt a more purist “net-net” style Graham investing strategy…. It just means the opportunities are fewer and further between, and often much farther down the market cap ladder where fewer eyes are looking, and where more stocks are not yet profitable.

Your investing style must match your temperament, your time horizon, your goals, and your portfolio size.

To that end, let’s discuss what is actually meant by “value”:

ALL investing, in my humble opinion, is value investing. You are paying a price today for a stream of future cash flows.

To that end, YOU must make a personal determination, based on your analysis and experience, if the current price is a fair price for future cash flows, too expensive, or even a discount to future cash flows.

Hence I would argue a good definition of “Value Investing” would be:

“Investing in companies where the market is mispricing the future.”

(This is where I would argue Peter Lynch is the father of modern value investing: Retaining the fundamental and strategic analysis, but also focusing on his circle of competency so that he can more accurately estimate future cash flows).

So, in closing, I’d like to say that I appreciate this group…. But we all have to get out of our habit of criticizing a post or idea because it doesn’t meet OUR OWN PERSONAL definition of “value”. If someone knows more about the semiconductor industry than you, they could EASILY make an argument for Nvidia being a “value” play….while you wouldn’t touch it with someone else’s brokerage account.

But that also means that our analyses must address the diverse concerns of the broader community, recognizing that different people take different approaches to identifying value, or else stop being surprised when your Palantir post gets a lot of blowback.

Later today I will be posting my analysis of a company that the vast majority of this group will not view as traditional value. That’s fine. I will make the case that a combination of quantifiable and non-quantifiable factors make it a clear value play in hopes to persuade some of you purists to see the bigger picture.

Thank you for your time and consideration. I hope have not offended anyone, and I am always open to feedback and criticism. (Except criticism about this being a long post… I am who I am)