Bitcoin Forum

Just wanted to share some thoughts about the recent market developments, and get feedback from the knowledgable BitcoinTalk community.

1920-1930s: we saw an emergence of technical analysis with the books of Richard W. Schabacker (even though the history began long before that in 17th centurty). At those times, if you had ability and resources just to chart data and identify visual patterns - you could make good money (read more here: https://en.wikipedia.org/wiki/Technical_analysis). Effectively it was - see the chart and make investment decision based on the trend.

1930-1960s: we saw an emergence of value investing with the first attempts of John Maynard Keynes, but his approach was too high-level (macro-economy) therefore didn't see substantial success before Benjamin Graham started researching and following this approach on a company-wide scale. At those times, if you had ability and resources to analyze fundamental data (balance sheet, income statement, cash flow statement, etc.) and understand good vs. bad patterns - you could make good money (read more here: https://en.wikipedia.org/wiki/Value_investing). Effectively it was - see financial statements, and buy what is undervalued.

1960-2010s: we sew an emergence of growth investing with the growing popularity and success of Charlie Munger, Phil Fisher, and of course Warren Buffett. The entire idea was to buy whatever is expected to grow in the future, because it can become the next Google or Facebook. At those times, if you had ability and resources to analyze and predict future potential growth of the company - you could make good money (read more here: https://en.wikipedia.org/wiki/Growth_investing). Effectively it was - even if the company is overvalued or already fairly priced, it's okay to buy-in if there's substantial growth expected.

2010-onwards: we are observing an emergence of narrative economy and narrative investing. It is well documented and currently being popularised theory by Robert J. Shiller, where charts don't matter anymore, fundamental data doesn't matter anymore, future growth doesn't matter anymore. All what matters is the narrative (i.e. story) around the particular asset / stock / etc. If it got a good story which is able to spread like a virus, no matter how good or bad the stock/(asset) is - it will deliver substantial returns (read more here: https://www.ft.com/content/5ba0adf6-ec3c-11e9-85f4-d00e5018f061). Effectively it means - if you can identify good story that would be appealing to other prospective investors, and able to invest in that story early enough, you can outperform others.

While the idea of narrative economy might sound too new or experimental, the recent market developments, with the stories surrounding such assets as Tesla, Zoom, Bitcoin, BioTech, COVID19 vaccine developers, cannabis stocks, and many others, with the success of such investors as ARK funds, there is clearly some evidence that the world has shifted to narrative-based economy, and neither charts, neither fundamentals, neither growth matters anymore.

What do you think about that?



P.S. the dates and time ranges above are just for general reference, as some people still falsefully believe that they can use TA to outperform market, or try to make investment decisions based on BS/IS/CFS. Some of the ancient approaches still might work in very specific cases or asset classes, and some people might argue that the investment school of though has changed at other dates, but overall trend and change I personally believe is okay to be marked with those dates. Of course that is by no mean an absolute and only correct idea.

Good read OP. Thats what I observe in last years of my presence on market (regulated stock market and crypto market). Undervalued assets remains undervalud for years, technical indicators are raped one after another. Everything moves in pump/dump like movements. People no longer use math and economy to invest. They use dreams and emotions. I think that evolution of narratives (from undervalued assets, to well priced with good perspective to "yolo, buy the story, give me lambo") is somehow connected to printers doing brrrr and cash surplus, disappearing options to protect it against inflation, increasing amount of retail investors, attracting younger and less experienced investors to the market, 12 years of bull market in US and many more.

Thank you, thread author!  A very interesting and useful topic. 

I first learned about promising altcoins in 2017.  I asked myself the question - which altcoin should I invest in?  In my opinion, the main criterion for a good investment object is the developer's ambitions.  A developer's ambitions are the stories they tell.  Storytelling is very important in the crypto industry. 

In June 2017, I loved the story told by Dan Larimer.  These were stories about the killer Ethereum, about the first blockchain operating system, about global corporations that would seek to buy EOS cryptocurrency for themselves.  It was a beautiful story. 

Dan Larimer wrote in one of his articles that EOS will cost $ 30.  At the same time, this cryptocurrency could be bought for 0.6 - 0.8 dollars.  EOS's price never hit $ 30.  However, in May 2018, she bet $ 21.  At this price, I sold my coins. 

When the mainnet launched, telling beautiful stories became more difficult and the price of EOS plummeted ...

I think the description of the historical eras hit the nail pretty much on the head, but with the 2010s onwards I'm not so sure.

While the label "narrative economy" (or rather "narrative investing") does make sense, generally speaking, I would not see it as part of economic evolution but rather as a short phase that usually precedes a bubble. Take the dotcom bubble for example. Sure, it may have started as an example of growth investing, but it ended up as investors telling themselves fantastic stories about the companies they are investing in. Or if you look further back in history, the South Sea bubble. Investors telling themselves fantastic stories about unimaginable riches across the pond. Even outside of bubbles you often see a bit of a narrative factor at play. That's why exciting stocks mostly come at a bit of a premium, regardless of growth potential.

Now I'm not saying that narrative investing had its play in every bubble -- both the US and Japanese housing crises had mostly other root causes -- but once investors turn to narratives rather than facts, by definition they are decoupling from reality. And while that may work for a little while, it's rarely a good sign.

Thank you guys for your kind comments and for your valuable opinions!




You are absolutely right. That's actually what I observed too while working for activist investment fund where they try to find undervalued assets (thus there's possible upside when market realizes the asset value) + try to create value for the company themselves. Yet, over the many years, if the company doesn't become popular (i.e. like Tesla and those) - no matter how good or strong its fundamentals - it will remain undervalued for decades. If you check the performance of other activist funds - they also start to struggle to earn decent returns, and I assume it's for the same reason. I think you summarized the main drivers behind that transition pretty well about expansionary monetary policy, retail investors, etc. As a good evidence of that is also the sad story about the trader of Robinhood who got a negative $730,000 balance and decided to end his life. Before at least it were professional Wall Street professionals committing suicides :D but now it's regular people who didn't know what and what for they trade.




It's "sad but true" that you mentioned that "Storytelling is very important in the crypto industry". Way too many people rely entirely on stories, and due to that lose their money (to the ones who exploit those stories {either project teams, either early investors ("greater fool theory": https://en.wikipedia.org/wiki/Greater_fool_theory)}). I agree with your opinion, except for one part only that "the main criterion for a good investment object is the developer's ambitions". Sorry, but I think this is wrong. I personally might have ambition to overtake NYSE & NASDAQ, but I might be completely ignorant and have no idea how business works. Then you are in a bad investment. But I see how other people followed the same logic, and this is what always made me smile - when literally a bunch of kids or recent grads without work experience or obvious scams / ICO-"prostitutes" (a term in Russian for people who sell their faces to different projects just to add "recognized" team members) claim that they gonna make the next CME in derivatives, or HSBC but on blockchain, or something else. From my personal perspective - of course ambition is a great thing, and if you don't have one - you shouldn't be doing own project / company / startup (as they say "The soldier who doesn't dream to be a general is a bad soldier"). But the ambitions should be reasonable. Like if some kid from Ukraine says he is gonna do next Facebook on blockchain - I definitely will turn down such project; if Elon Musk says he is gonna do next Facebook - I believe, because he has resources, money and experience; if the kid from Europe says he is gonna do some ad-on for Facebook or improve some minor area - that sounds more reasonable and doable.

As for EOS, I also invested there before, when I was engaged in investments, but luckily I bought at around $1-1.5 back in 2017, but I liquidated all of it in April, and the rest of crypto portfolio together with BTC in the end of 2018, so I can't complain about returns :D but as I mentioned - my opinion is that if you are able to predict the development of narrative and how it will be perceived, or can exploit it - you might be well positioned in current investment area, otherwise, it's not very good idea to base investment decision entirely on promises or ambitions (especially dev teams' cuz they are not businessmen, they are just tech guys, and developing a narrative or good and stable business requires a different skillset).




I was thinking about the same examples actually with the dotcom & South Sea :) yes, you are absolutely right that at those periods the reason for crashes was ultimately the narrative-based logic, but those were isolated examples within specific niches / companies / markets. But nowadays, in the past decade or so, it appears to me that this is very persistent and is now the only way to make alpha in the market. Thus, can't we mark it as investment/economic paradigm shift? As I mentioned above about my previous work experience (+ other value/growth/activist/etc. funds), and as mentioned change of global factors by Tytanowy Janusz above, it appears that this is the strategy for now.

I know that dotcom, US/Japanese/(now Chinese?) real estate markets started growing for a good reason, but ended up in the "narrative" area with the known results, but now this narrative-based logic appears to be literally in every area - from the American large caps, to Chinese small caps, Russian mid caps, cryptos, PE/VC, seed startups, DeFis, fixed-income, new tech, ... you can continue the list. Whoever is not part of the fancy "next great X" or "will change the world in Y" - is losing, whoever is in - is earning. And I believe the greatest evidence that it's not just a small market hype or craziness, but the "new normal" is again it's prolonged history of it for over a decade. Now is the only time when everyone around expects market(s) to crash, but it doesn't, while before everyone expected market to go on raising, and it eventually crashed.

Not sure who said that, but I read ones that "if everyone expects a certain thing to happen - it will not happen, when everyone isn't expecting that to happen - it eventually will", and this thing is again the market crash, which people predicted in 2010, 2012, 2013, 2014, 2015, 16, 17, 18, 19, 20, and now 21... Yet, all markets which are part of the great narrative continue to hit ATHs, and the short sellers (of Tesla, Bitcoin, Zoom, cannabis stocks, tech, solar energy, ESG, real estate EFTs, etc.) keep losing.

One more think caught my attention:


Doesn't it change the investing into "gambling on Ponzi scheme"? You don't earn from profit that undervalued asset generates and share with investors (old era investing), you earn only if more and more investors believed in the story you spot before them.

Although it does look like a Ponzi scheme, I think this is the current reality: no matter how good your asset can be you are going lose the competition to those who attracted more investors. So, apart from being a good project, attracting investors is very important.

In my opinion, everything here is much more complicated and at the same time more interesting.

Nowadays virtual reality has gained great importance in our world.  At the same time, the development of technology has advanced significantly. 

Engineers can solve any technical problem.  Programmers can write any program. 

However, terms of reference are required for both engineers and programmers.  This technical assignment (at the architecture level) is an interesting story. 

The Bible said, "In the beginning was the word." 

Thus, we see a logical sequence.  Interesting story - Terms of reference - Program code - Final Product.

"Isolated examples" that crashed whole markets though! Also the examples you mentioned as narrative investment cases are pretty niche as well ;)

Honestly I think the main driver behind this extended bull market is a lack of alternatives for any aspiring investor. There's just nowhere to put your cash in except for stocks, crypto and maybe real estate. A decade ago the cautious investor could flee into bonds. They might have made less profit, but it would still have been profit. These days that's a losing proposition and there's nowhere to go but to charge forward. Essentially monetary policies have herded cash into arguably ever more overvalued assets -- which of course kinda loses its meaning once everything is overvalued.

I get that narrative investing can be highly profitable, but it's simply not sustainable, not if it's the only factor. And while investors seem to be more likely to "buy the dip" these days, as we've seen in March 2020, it will come down eventually. Regardless of that not being invested seems to remain a losing proposition -- After all "the markets can remain irrational longer than you can remain solvent".

From my view it doesn't necessarily make investing "gambling on Ponzi scheme". While yes, certainly it makes (potentially) unfavourable asset overvalued, there are two additional factors to consider:
1) Greater fool theory (https://en.wikipedia.org/wiki/Greater_fool_theory): it means people buy/invest based on the narrative that either the "next fool will buy it from me later" or "the narrative keeps spreading like a virus, and with greater penetration I can sell to others". With the whole concept of investment or trading, I believe that is applicable not only to narrative economy but even to TA/value/growth/etc. investing. In the end we all buy with the hope of being able to be able to sell to someone later at higher price. That buyer might be buying from us due to: 1) s/he is fool, 2) has more information than us and expects to earn more, 3) various investment strategies and investment horizons (maybe I want to invest only until end of 2020 and then retire and liquidate all holdings, but the buyer just starts investing in the end of 2020 so my asset is a perfect fit for h/im/er), or due to 4) different kinds of mismatches (liquidity, duration, rate, return, etc. mismatches (maybe I need money right now so I have to sell, but someone is able to buy it now). From this perspective, while most of the people might be selling because they think the buyer is a fool, it doesn't actually mean that we are playing ponzi or gamble.
2) Minsky moment (https://en.wikipedia.org/wiki/Minsky_moment): "In economics, a Minsky moment is the moment when reality catches up with an overly-optimistic financial sector, leading to collapsing prices." - the green colored part is what I try to explain, but the rest is just FYI about what the original term means. So for example imagine a bad company X which somehow got a way to manage and promote it's narrative and spread it like a virus. If the company is publicly traded, their stock price will shoot, leading to lower cost of capital (WACC: https://en.wikipedia.org/wiki/Weighted_average_cost_of_capital), as a result of lower WACC, stock price will continue to increase. With that, banks will be more willing to lend them at lower rates and/or use those stocks as collateral. So the company can borrow cheap money if they have too. As a result, with more capital in hand, they can hire top people (ex.Google, Goldman Sachs, etc.) who could fix the product/service and operations and make it a really good company eventually. So like that "overly-optimistic financial sector" based on a good, yet untruthful narrative, made actually a good company in the end when the reality caught up with the market perception.

So based on the above two, I believe narrative economy certainly has some component of gambling and/or Ponzi (like any other regular investment/trading/speculation), but is not entirely that bad. Just another way, not better or worse than others, I think.




Yes, that's my point. Not necessarily investors though, as it can be just supporters/promoters/media/etc., but all of that will eventually translate into investors. Like if everyone in the world starts saying you must invest in X ICO and repeat it every day, even Warren Buffet will do so eventually when every single person (including his wife, kids, drivers, shop sellets, etc.) says so.




I am not entirely sure, but I believe you refer to the 2nd part of my above comment about partial Minsky Moment? And I like your reasoning on this, I believe you are correct and it fits well the new narrative economy theory, as following that way even a bad/inexistent/failing/yet-to-be-developed product/company/service/project has a potential to be great. But only if the team is good and strong and understand what it understand, and understand what they don't understand (reference to my earlier comments when I said that some of the kids doing DeFi or startups are very funny when they think they with a team of 3-5 or even 20 people can build the next Google or international bank :D)

I believe Value investing is the best and will never fail any analyst if done right though mostly for long term investors. Everything is also about narrative, if you can sell your project well to investors and they believe your story fine but its only work short time for project not creating any value, the story behind Bitcoin is true and people bought into it but apart from this narrative it has proven over and over again that it is a good Store or Value, I bought my first BTC at $420, it has done 100X since then unlike most of these 2017 ICOs that promised to change the world but have nothing to back it up

Yes, you are right that those examples crashed the entire markets (same with Bernie Madoff and LTCM) :D But what I meant as isolated examples is that at that time okay there could be 1-2-3-5-n overhyped narrative-based overvalued stories which negatively affected markets. But now we see a great number of those all together. And the examples I gave are just among the most obvious ones, yet there are many others less obvious which I didn't mention (for example: gave investment (I know that sounds crazy :D) - is a big thing in China, due to limited space available, and continuous appreciation of space for keeping the urn for ashes; luxury goods secondary market - some of the luxury bags/snickers/clothes double in price within days (and the trend persists for long time) once they are released by big brands; and there are other examples if we think of). Thus my point is that now virtually everything is either following a narrative based logic, or simply failing.

And for luck alternatives, honestly I don't really know. From one side we have all these things which we never had before - from grave investing and Amazon shops to complex financial products, derivatives and cryptos. Investment opportunities are countless (you could even just go down the street and ask for equity stake some local bakery or coffee shop). Yet, as you correctly mentioned - with these prices and overall market fuelled by insane printing (yet it's arguable if that's good or bad, as without that we all could be bankrupt by now).

Loved the quote "the markets can remain irrational longer than you can remain solvent" - it's one of my favourite ones. As for narrative investing being not sustainable, well certainly it's not. Same with value or growth investing. Nobody can guarantee that the startup I invested will really become the next Uber or Google. Same as nobody can guarantee that if I buy a factory for less than it's NAV, it will eventually match with its NAV. Isn't that a definition of investing and trading, irrespective of which strategy or logic we follow? :)

Value investing vs. any other style I think is more of a personal preference and beliefs. But you might want to look at the top funds' performance that follow value investing strategy (here: https://money.usnews.com/funds/search?category=large-value, and here: https://www.moneycontrol.com/mutual-funds/performance-tracker/annual-returns/value-fund.html).

Similar patterns would be for growth, and usually worse patterns for TA-based (yet in professional finance that's not TA-based, but arbitrage funds or quantitative funds or high-frequency trading firms).

As for Bitcoin, well only the history will show what it was and what it is. When we look at current events, we are always biased, but such things are better analyzed in retrospective historical way, once we have more data, free of short-term biases (narratives? :)) and can make well informed and comprehensive analytical decisions.

This is a great summary of investment strategies over the last 100 years. We can see a change in investors sentiment and what kind of financial tools they use for making decisions. Even though people already focused on trends in the 20s I think its still a major tool in today's world. Relying on chart analysis is still the bread and butter of many financial advisors in today's world. There are quite a few trading systems out there which have very fast access to the exchange and use intra day data of stocks to make a good profit.

Thank you for your kind comment. Actually that's something I recently noticed too (after writing the post and reading it again) that as we move along to the current era/times investors are less and less numbers-driven, with one extreme being TAs who rely entirely on numbers/charts, value and growth being in the middle as those metrics can be interpreted differently (even EBITDA, EV, Equity, etc. can be calculated differently depending on which accounting standards and which logic you chose to use), and narrative-investing being another extreme and we can say numbers-agnostic.

And yes, some funds still do use TA and trading data to make investment decisions, but those are mainly either arbitrage funds (thus yearn stable but super low returns), and others being high-frequency trading firms with the direct links to the exchange to get the data first in the world so they could legally "front-run" the market. But they are not that profitable usually too. But at least they don't have human error factor in :)

Lol, Charlie Munger and Warren Buffet are two of the greatest value investors in history. What on earth would make you identify them as growth investors? Growth and value investing are completely antithetical to each other.

As for narrative investing, I don't agree.  Eventually, fundamentals of the underlying business matters. The best example of this is Tesla.  Tesla won't keep trading at this valuation indefinitely, no matter the narrative around it.  Eventually, it's going to have to turn mega-insane profits to justify this valuation. 

Ironically, bitcoin is only valuable because of narrative investing.

I love it when people put forward theses and justify them with 1 extreme case. I could say that it always rains in my city, because a moment ago I looked out the window and it was raining.

The fact is that popular assets (not only tesla) had p/e around 50 and were overvalued, and should dump to around p/e=20 (average for nasdaq is 30 - and nasdaq is overvalued too), but after 5 years has p/e around 500. (f.e nvidia, netflix), and in another 5 years can have 5000. You know why? Because we broke off the foundations not 2-5 months ago (tesla) but 8-10 years ago on every popular asset, because ... for 10 years the foundations do not play a role, because ... "2010-onwards" we deal with "narrative investing" exactly like described it by the OP. Dump, you are talking about, will come with the emergence of a new narrative. But whether it will be in 2021 or 2030 is not known.
 

Okay, here we go:

Charlie Munger
https://i.postimg.cc/bJdzbm7t/Screenshot-2021-01-17-at-12-23-33-am.png (https://postimg.cc/9R55HYFm)
https://i.postimg.cc/C5F9k5B6/Screenshot-2021-01-17-at-12-23-40-am.png (https://postimages.org/)

Warren Buffet
https://i.postimg.cc/CxCz76zB/Screenshot-2021-01-17-at-12-22-20-am.png (https://postimg.cc/SnsSNdLk)
https://i.postimg.cc/sxD5pCVJ/Screenshot-2021-01-17-at-12-22-44-am.png (https://postimages.org/)

Bitcoin
https://i.postimg.cc/pTDmcWVH/Screenshot-2021-01-17-at-12-29-41-am.png (https://postimg.cc/BLnZXG1Y)

Tesla
https://i.postimg.cc/Kv753btC/Screenshot-2021-01-17-at-12-28-13-am.png (https://postimg.cc/GH2D6Z7j)

Do I need to provide more comments or arguments about who is the greatest investor? While Charlie Munger and Warren Buffet surely WERE the best investors of THEIR times, for now, I am not so sure they still remain so. We must recognize when the times and leaders and "greatest investor" title changes. Otherwise it's like observing Bitcoin, but still calling U.S. Dollar the greatest currency in the world.

Well, I believe just a simple data of Charlie Munger vs Warren Buffet vs Bitcoin vs Tesla show my entire answer and argument, so I don't need to add more to that.

As for why identiffying the aforementioned two as growth investors, you can take a look at their portfolios and latest investments. Some of their assets show clear "growth-investor"-like patterns, while they don't publicly disclose that. Irrespective of that - what people say in public is not always what they actually have in mind.

And about Tesla, I gave a comprehensive explanation above why even if Tesla fails to deliver solid revenue in the near future, their narrative-driven market cap can turn the company and force it into a great business eventually. That's not something good or bad, that's just what it is.

Using your own argument about "won't keep trading at this valuation indefinitely, no matter the narrative around it.  Eventually, it's going to have to turn mega-insane profits to justify this valuation." - what would you say about Bitcoin in such context then?




I really agree with you in regard to how people tend to generalize one thing to everything else. Just an additional point to your comment is that if for example, the previous commenter would take a loot at Chinese BioTech P/Es or HighTech P/Es or some very popular companies (premium alcohol, social media, content production, new media, KOL factories) P/E of 1,000-1,500 would be very very normal. Nobody will be concerned that such stock is "overvalued". It's just the way it should be because it's the top narrative now, everyone wants it, and "tomorrow will be more expensive than today as more people will get to know it". And I personally don't know what new paradigm will come next, but I for sure don't foresee the current one changing in the nearest future - nobody is going to care about fundamentals anymore.

P/E ratio is only useful when comparing like companies. You can't compare high growth tech stocks like NVIDIA or Netflix to an entire index and generally conclude they're overvalued because the NASDAQ is such a broader base, and growth stocks are so speculative in general. But one thing remains universal, the moment the growth that was anticipated slows, the prices crash, no matter what the narrative is. Because eventually, it all comes back to fundamentals and profitability.

I'm just trying to understand why you think Munger and Buffet are growth investors. Your posts though lead me to believe you may not know the difference between value investing and growth investing, or else you just don't know much about Munger or Buffet as neither would be described as growth investors by themselves or anyone who knows anything about stock investing.  Buffet's biography on wikipedia attests to this:  "He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham... He is noted for his adherence to value investing, and his personal frugality despite his immense wealth."

A better example might be reading Buffet's own words though. You can read all of Berkshire's annual letters to shareholders on their website. In fact, if you start at the most recent and work your way backwards, you'll see they start nearly every letter with a discussion of "intrinsic value."  It is universally at the top of every letter because intrinsic value is what Buffet and Munger care about because they're value investors to the core.  Look for yourself:  https://www.berkshirehathaway.com/letters/letters.html (https://www.berkshirehathaway.com/letters/letters.html)

As for Bitcoin in the above context, I wouldn't say anything about it because it's not applicable. Bitcoin doesn't produce income, so it can't be valued on fundamentals because there are no fundamentals. It's purely a speculative asset and as I stated, the ultimate example of narrative investing.  Telsa, however, as much as the price is driven by speculation, will eventually have to produce profits to justify its valuation. If growth slows before turning big profits, the price will crash. Bitcoin and Tesla exist in two different universes, they aren't subject to the same rules.

Thats part of current narrative. That 1 $ earned from selling tomatos is different from 1 $ earned from selling PCs. I could have agree with you if we were talking about P/E 10 from tomatos and P/E 30 from graphic cardas (nvidia) but we are talking about 10 vs 500-5000. Netflix has P/e around 500 and has around 200 mln registered users. To justify current valuation netflix should grow 20 times to 4 bilion users while "4.66 billion people were active internet users as of October 2020," (https://www.statista.com/statistics/617136/digital-population-worldwide/). So netflix should sell its product to every person on earth that has internet to justify such evaluation (btw. you can share one account with others). People no longer take care of fundamentials and there is no super spacial force that may push evaluation of company back down to "fundamentals and profitability." since as you said by yourself "P/E (AKA fundamentals and profitability) ratio is only useful when comparing like companies. "

First, NFLX's PE ratio is around 80, not 500, so there's nowhere close to 20x growth needed to justify the valuation or bring it down to more traditional PE levels. And why are you extrapolating users based on PE? That makes no sense because the PE ratio encompasses more inputs (earnings reflect revenues AND costs, not just revenues which is all you're accounting for in your example extrapolating user growth). You would extrapolate earnings, because you can reduce costs to increase earnings, which is what people who are valuing Netflix at 80 times earnings are doing when they judge that NFLX will eventually be more profitable than it is today, when they don't have to spend so much on content acquisition to fuel user growth. If that investment thesis doesn't pan out though and it doesn't become more profitable when revenue growth slows (for example because they have to keep spending the same amount to retain users), the valuation will fall. It is only because it is still in a high growth phase that people cut it a break on earnings, trusting that when the high growth phase is over, costs will rapidly fall to boost profitability.

Sorry. Was looking at wrong chart. You are right


Just wanted to show a scale in simplest possible way.


Its more to me like retail investors FOMO into popular stock rather than someone intentionally is accepting 80 P/E because in far future maybe competition will not overtake netflix (HBO GO, Amazon Prime), netflix will be able to cut spendings and current price will be relevant to fundamentials.

I really understand your point about why you think Buffet and Munger are value investors, but let's go point by point:

Value stocks   
•   Currently undervalued   
•   Generally low P/E ratios   
•   Generally high dividend yields
•   Expected to be appreciated by the market to the intrinsic value   

Growth stocks   
•   Currently overvalued   
•   Above-average P/E ratios   
•   Usually low or no dividend   
•   Expected to deliver outstanding growth which is not priced in current market price

I believe you won't argue on the above, as those are pretty much the main points of difference between the two strategies. Now let's take a look at the latest investments of Buffet for example:
•   AbbVie (ABBV) P/E 23.8, Pfizer P/E 23.7, Eli Lilly P/E 31.3, Merck P/E 18.4, Johnson & Johnson P/E 19.9 (yes I know he invested in several others from this list too)
•   StoneCo (STNE) P/E 132.03
•   Snowflake Inc. (SNOW) P/E negative (I'm sure you know when that happens "Since such a case is common among high-tech, high growth, or start-up companies, EPS will be negative producing an undefined P/E ratio (sometimes denoted as N/A)" source: https://www.investopedia.com/terms/p/price-earningsratio.asp)

These are just few examples, but you can take a look and also analyze Amazon.com (AMZN), Apple (AAPL), Biogen (BIIB), among others. Do you think Apple or Amazon for example are undervalued? :) Furthermore, Buffet has always saying that you shouldn't touch industries you are not familiar with, but yet, exactly in 2020 he increased % of portfolio in BioTech & Tech - 1st deviation from own principles, these two areas are especially to be known either overvalued, either being growth areas - 2nd deviation from own principles, and the examples above are just an additional evidence of that.

As I noted before, don't pay too much attention to what people say or write, but instead watch out for their real actions.

As for Bitcoin and Tesla, as you said correctly - they follow different cases, yet both might be good examples of recent shift to narrative economy. However, I don't necessarily foresee crash of Tesla (possible, but not necessary), while both can be argued to be undervalued (value investing), to have fundamentals which we don't account for with old-school metrics, and to have huge growth potential (growth investing), and be heavily driven by their pop stories (narrative investing). But those are topics for a different discussion I guess.

I personally don't think P/E is of great use to any of the mentioned company for several reasons:

1) P/E comprised of:
 - Price: subject to supply & demand on the market (which can be manipulated even by some articles on popular blogs)
 - Earnings: include accounting statements-based data which can be outdated ("P" of 17/01/2021 but "E" of 2020H1 for example), include items which are accounted for differently from company to company (depreciation, pensions, liabilities, intangibles, financial expenses, COGS, and even revenues)
 - from the above it's like comparing how much someone is willing to pay for a tomato NOW divided by how much I personally declare about how much pesticides I used to grow that tomato a year ago... doesn't that sound insane? And this is what you effectively do with any financial multiple (P/E, P/B, P/S, EV/EBITDA, P/CF, etc.)

2) Even with P/E of 500x or more you cannot clearly say that the stock is overvalued and you need to short it, as again with Chinese example - there are stocks with even higher P/Es which continue to delivery outstanding returns as opposed to the "fairly valued" or "undervalued stocks"

To me, Bitcoin seems to have included all of these investment types and is a mix of them.

Tech Analysis is used in trading of BTC to understand important buy/sell levels where high liquidity is available and that BTC could go towards in order to liquidate such areas.

Value and growth investing had been a part when people saw the old records of others buying it for very low and then they bought it even at highs because they believed in the technology and waited for the growth of the project as well as its value. So these 2 are correlated here.

And narrative economy? Ah, Bitcoin got its mass adoption through the power of word of mouth advertising and there are so, so many success stories available in the markets about people earning great returns through this investment.

There is definitely some truth to this, there is a great deal of momentum investing with tech stocks. Tesla is currently the best example of this, but other very high growth tech stocks are also in this boat, like Shopify, MercadoLibre, Jumia, and Twilio (just to name a few). These all have sky high PE ratios (or no PE ratio because they're not profitable yet) but the thesis is that the rapid growth will eventually fall to earnings when the rapid growth phase is done and the business won't have to spend so much to sustain it.

I would generally agree with your characterization between value and growth with the main emphasis being that value investing is primarily focused on stocks that are undervalued based on an analysis of their intrinsic value vs. what the market is paying for them, and growth stocks are primarily defined by not being concerned with earnings because all free cash flow is being deployed to grow revenues.  

However, none of the drug companies you listed are growth investments, those are all value plays.  If there's one thing Warren Buffet likes, it's a a broad defensible moat around the business and high barriers to entry for competitors, and this pretty much sums up the biopharma market perfectly where there are high regulatory hurdles and the cost for new entrants in the field is incredibly high. Further, those PE ratios don't even suggest they're high growth companies, this was definitely a value play.

Apple was definitely a value play when Buffet invested, and it was also only made after his younger portfolio managers kind of taught him how to value tech stocks.  https://www.youtube.com/watch?time_continue=143&v=mOgAJnwQxzw&feature=emb_title (https://www.youtube.com/watch?time_continue=143&v=mOgAJnwQxzw&feature=emb_title)

StoneCo is a Brazilian tech firm that deals in money transfers and I would characterize it as a growth company (I've followed the company closely, ironically because Berkshire invested in it), however a portfolio manager at Berkshire is responsible for this investment, not Warren Buffet.


Since Buffet and Munger are quite old, they have succession plans in place for when they leave the company.  This has lead to more younger portfolio managers at Berkshire taking the reigns of ever larger swaths of the investment portfolio.  I am quite confident that you will find that any investment in growth/tech stocks were due to the younger portfolio managers, and not Buffet or Munger.

Again, read the Berkshire shareholder letters. It's a primary source.  Buffet's own words tell you he's obsessed with intrinsic value, not growth.

(Kind of a Buffet fanboy here. I've read a lot of his writing over the years.)

That YOLO thing was funny but did make sense , I do think that we have to get ready for the worst case scenarios since right now we have newer generation which are going to take over the economic situation and if we think about the previous generation being YOLO , I really don't know what will happen now 😂.


At the same time I like to believe that bitcoins is something which is a mixture of everything, we cannot just categorize it in terms of one particular stocks. That is why it is indeed more successful since it's attracting the attention of everyone involved and which is an amazing thing.


Tesla even outperformed Apple for sure and the way they radiated their boundaries to every place is actually commendable. They even went to space lol and all those people who doubted them ever are now buying them.

Yes, you are correct in your analysis from my perspective, Bitcoin is a mixture of those 4 themes, but so are the rest. There's no true "black" and "white" in this world, therefore there's nothing entirely driven 100% by TA, value, growth or narrative investors. However, we can generalize and simplify in order to better analyze, otherwise we couldn't even come up with a unified GDP measure or P/E :)




Lol, yes I noticed that we got a Buffet fanboy here :) Which is alright, just don't idolize someone too much, learn from the greatest about their success in their times, and apply what is suitable to the changed time which might require a different approach (if we would follow old norms and methods - we still would be riding horses and thinking electricity is sent to us by Gods from the sky).

As for drug companies and Apple, we will never reach a consensus, what is value to you or Buffet - growth for me, what is TA for me - narrative for others. In the end as they say "value of an asset depends on who is paying the valuer".

Furthermore, we could even go on for a discussion of:
- Intrinsic Value (IntV) - asset or security valuation by someone who has complete understanding of characteristics of the asset or issuing firm (used for most investment decisions); vs.
- Fair Value (FV) - the price at which a hypothetical willing, informed, and able seller would trade asset to a willing, informed, and able buyer; vs.
- Investment Value (InvV) - value of a stock to a particular buyer, depending on the buyer’s specific needs and expectations, as well as perceived synergies with existing buyer assets (usually for M&A and LBO); vs.
- Equilibrium Value (EV) - any market price that clears the market at any point in time when there are no more buyers or sellers as no market inefficiencies exist (economic term and usually unachievable condition); vs.
- Market Value (MV) - anything you observe on the market at any point in time for any asset; vs.
- Discounted Present Value (PV) - all future expected cash flows discounted to current period of time (commonly, but not always equals to IntV); vs.
- Book Value (BV) - book value of assets as per accounting records (sometimes equals to IntV).

All above will change from person to person depending on own understanding, and depending on the valuation purpose, and "... who pays the valuer". And what is IntV or InvV to Buffet, won't be same to the "average Joe" from down the street. Because the fact that Buffet invested - is a game changer to the market, moreover, he personally can affect the company, but others - not so much. And, as you correctly noted, some of the investment decisions were made by younger investment managers, which deviated from Buffet's strategy, so that means: either 1) Buffet hired not so intelligent people who don't fully understand "value investment" theory, either 2) those people don't believe in "value investment" theory so much, or in it's future, either 3) We don't fully understand "value investment" theory (Snowflake P/E ???), or 4) We don't know the whole picture and truth. I believe the last reason is the most reasonable to assume. Therefore, I don't see too much point arguing around those here, as here we discuss a different thing, however, would be happy to share own opinions on that in a separate thread if you would like to :)

Tesla stock outperformed Apple, yes, but the company definitely didn't. Apple makes over 50 billion in profit per year and Tesla only just became profitable at all. Tesla revenue growth currently far outpaces Apple, but that's obviously easy to do when you're starting from such a insignificant base (relative to Apple).

I think we've reached the point, on this particular issue, where we agree to disagree (for lack of a better characterization).  I think ultimately that the venn diagram of value investing and growth investing can have overlap, it's not necessarily that a value investment can't be made in a growth company. After all, all growth investors are eventually counting on profits if they're long term holders and not just momentum trading, which describes the Berkshire approach specifically and also mine, it's just that when they make the decision to invest they had a different thesis about how/why the stock is going to go up. But my whole entry into your response was just to rebut the notion that Munger and Buffet are anything other than value investors.

The "narrative investing" theory seems to be more related to startups,instead of old and established companies.This theory looks OK,but I have a different opinion about the future.
2020+ investing will be like:Buy every asset that has at least a little bit of legitimacy and hype,price bubbles are gonna grow,the Federal Reserve keeps printing money ;D
I'm not quite sure that technical and fundamental analysis are 100% obsolete though.

I agree. I think people as old as Warren Buffett, 90, physically can't comprehend the current situation. Even Buffet himself knows that and that's why he hires younger investment managers. So, when journalists, in order to create a clickbait article, ask Buffet his opinion on this or that, we shouldn't blindly follow his advices.

I don't think there is anything truly new or old when it comes to money and investment.

A person could open a bible and see money changers in jewish temples using the same narrative based marketing strategies investors use today. The same with Hayek vs Keynes potentially being an illusion of choice narrative. Trickle down economics, modern monetary theory, austerity and other things. There have always been commonly accepted myths and legends built around financial institutions. In an effort to push manufactured consensus that serve underlying agendas of various types.

If anyone's seen the movie Rocky 5. The families financial advisor is given power of attorney. He invests Rocky's money in a risky venture expecting to turn a profit for himself and return the funds before anyone notices. Gambling with the money of creditors this way dates back centuries. There's a legend about the Rothschilds using this to multiply their wealth in the 1700s - 1800s(? If I'm remembering correctly ?). I think the same could be said about virtually any theme relating to investment and money. There are past examples dating back through history. They're all old things, rather than new.

I can't agree that the "narrative investing" applies to startups only. In fact it's quite applicable to the giants as well, which is strongly evident from S&P500 with vs. S&P500 without FANG+. Same for large caps doing vaccines, same for public companies suddenly engaging in BTC deals. It's just since most of the members here, including myself are more tech/fintech orienter, we know more about this area, but this is well applicable to healthcare, and other industries too. You are right about the Fed though :D they seam to stop carrying about what they buy into. And about TA & fundamental analysis - I started another thread related to this quite some time ago, where we all touched upon this too. You can check it here if you would like to: https://bitcointalk.org/index.php?topic=5300112.msg55829799#msg55829799




Yes, here I 100% agree with you. Especially with those journalists, as they always twist the original source and just try to make it more buzzy and popular, so when we get to read from them, sometimes it's an entirely different story.




What you refer to is that the history always repeats itself. Also depends on the time-frame, because as you correctly noted there can be cases where we can find something similar hundreds of years ago. However, while principles might be same or similar, the reality is different. If before for TA you would need to actually write down every single stock move and then draw the lines and make investment decision, now it happens in less than a second. If before to get the fair estimate of asset/company value you would need to physically go there and beg them to give financial statements to be able to even calculate net profit margin, now it takes less than a minute by googling for appropriate metric in most cases. If before to spread the narrative you would either need to stand on the street and shout or go to gossip with everyone around in the kingdom, or push hard the chief editor of newspaper to let him print your narrative story, now all it can take is just a few posts on unknown blog or few tweets, fulled with fake likes/retweets/comments. So as I said - principles are surely same - borrow, invest, interest, margin, etc., etc., but the conditions / environment is entirely different.

Yes, there is very little new in our world.  Everything we see happened in the past.  I love reading old classic novels. 

I find many interesting and instructive things in them.  For example, I like reading the novel The Count of Monte Cristo by Alexandre Dumas.  It is essentially a finance textbook.  The main character (sailor Edmond Dantes) dug up an ancient treasure (mined bitcoins).  Accordingly, he had a problem with how to cash out the mined treasure (exchange bitcoins for fiat currency).  Edmond Dantes successfully coped with this task.  He also took revenge on his enemy (banker Danglar) by manipulating the stock exchange.  As a result, Danglars' exchange positions were liquidated, and he himself was ruined. 

Reading about all this is very exciting.

Yes. I think its fair to say that while technology and methods have changed. The game remains the same.

https://i.imgur.com/3rA5lQ9.jpg

The rock based currency above could be considered a proof of work (PoW) precursor to bitcoin. (As many have noted over the years.)

A text book might say proof of work was invented by Satoshi Nakamoto in 2009. But the general idea itself could be hundreds if not thousands of years old. Utilized by many cultures throughout history.




Exactly.

The story of Edmond Dantas withdrawing his significant assets to destroy a fractional reserve bank in vengeance, holds true even today.

Which is why we see many banks limiting amounts on withdrawals.

I agree with you. That's really great representation of PoW :D But we also need to consider that such things were abandoned for a reason, and should try to understand it's implications for our future in the modern context.




Yes, the novel is really great. That's the reason many kids in Russian schools are forced to read it :D yet, barely even 1% at that age can grasp the meaning and insights at that age. There's also a says "everything new well forgotten old", same with many aspects that we are experiencing today.

The main character of Treasure Island, pirate John Silver, is my example of how to manage personal finances. 

He adheres to the principle of investment diversification. 

He invested part of his capital in his own small business (the "Spyglass" tavern). 

The second part he invested in commercial banks at interest.  At the same time, he divided the deposits between several banks (so as not to attract the attention of regulators). 

In addition, he reserves a third of the capital for investments in HYIP (investment projects with high risk and high potential profit).  Captain Flint's Treasure Expedition is an example of such a project. 

At the same time, John Silver is a conservative investor.  His main principle: "The main thing is not to make money, the main thing is to save."

You just wrote a plan that if followed by common people would make them at least 50-80% more wealthy than they are now :D Yet, only few ones will actually follow and succeed.

I would have never guessed I would see a long john silver message related to investing on bitcointalk, specifically not about investment considering how pirates were reckless at the time and this is just a book about them and a novel, not reality, which could mean you meant the author and not the pirate himself :D All jokes and shock aside, I do agree that this is a great deal of diversification when we are talking about bulk amount of gold, but that doesn't really apply to what we have in real world do we?

For example, if you have 1000 dollars, you can't diversify like that, so you have to end up with buying some stocks, a bit of gold, maybe some crypto like btc and eth, and you are already out of money, but you already spent maybe 50 bucks on the diversification process as well, and you just wait for it. Whereas Long John Silver didn't had anything like that, he had business' and expeditions, those are very different from buying btc and waiting.

At the end of the day, best competitors will win no matter you flex your assets so bad.

There are also stories who are not even real and can still be effective that's why there are investors who are getting baited by Ponzi schemes.

But on the other hand, making good project will really help each individual to learn, to understand, and to engage more about the market and economics. This will help you become more wise and business-minded that will help you make another strategies to attract future successful investors.

You are right, if a project was bad from the very beginning, it is going to fail no matter how hard you hype it. But let's forget about those doomed bad projects, and talk about good ones, among which hard to say which is better. Take these from the OP, for example:


I agree that we are entering the era of narrative-based economy, when a good story behind an asset can be crucial for its success.

I don't agree that the bad projects will always fail. If they are hyped well - they can last for prolonged periods of time. Yes, of course everything in the end will die and fail (even the good ones - that's just the nature).

The only perfect example of that probably would be - the United States Dollar :D I guess nobody would argue that it's not such a good "project" at least nowadays, yet it's the only dominant financial power around the globe, and is lasting for pretty long. It certainly started not out of narrative, but it continues its success on it too (US gov is too cool to fail, US gov will never default, etc., etc.). So here's an example of a bad, partially (or entirely) narrative-based project that is not failing :)

It may be true that, in the case of bitcoin, a some kind of narrative played a very important role but I believe after 12 years it's not about the narrative anymore. Bitcoin grew as a protocol, as a groundbreaking technology, as a new alternative financial layer to build next-gen fintech apps on top of it (LN being the most important to me). Its fundamentals have never been healthier than ever: hashrate growth, daily txs, value transferred, new users etc.
To me, there's no competitor in this sense for bitcoin after 2010. History is proving satoshi was right from the start.

I think you are making good points about the current state of Bitcoin, however I don't agree that much about how it began. Maybe it's good narrative played the role of making it good and bringing it where it is now? Just like I described before that it's self-reinforcing mechanism where good narrative plays to improve the fundamentals, which play to improve good narrative, and it goes on like this. And that could work with alternative assets like Bitcoin, and with traditional ones as well, such as stocks.

Well, in this case, we have to define what is "failing". Here's the graph of purchasing power of one USD in every year from the start up to 2020:

(The purchasing power of 1 USD in 2020 is 1 on the y-axis)

If it's not "failing", what is it, then? :)

Yes, USD is a narrative-based project, with a strong story behind it, created by Alexander Hamilton & Co. And that's why it has lasted for a long time. But as you rightly said, few people would consider it a good "project" nowadays. So, it's time to start switching to Bitcoin, I guess. :)

You are right, that before arguing about it, we need to define the "falling" :) Because, declining purchasing power is the issue certainly, but mostly for non-elites. But the "not-falling", which I was referring to, is the below one:

Global Reserve Currencies in Use & Their Share
https://i.postimg.cc/766bfxnJ/Global-Reserve-Currencies.png (https://postimages.org/)

OTC FX Currencies Turnover Share
https://i.postimg.cc/zvHBF0MJ/Global-FX-share-2019-by-currency.png (https://postimages.org/)

But, sadly or gladly (depends on the side the one picks to be), we have BitcoinBTC now, and the recent events with GME, AMC, etc. showed well that the "negligible people" (as seen by those hedge funds) can be a driving force all together that costs those billionaires their jobs, wealth, status and reputation.

Using a timeline far longer than any human being lives is pointless and purposefully deceptive. Nobody lives long enough to see dollars depreciate on that magnitude, so this graph is meaningless for practical purposes because not a single person in history has ever suffered anywhere near the depreciation the graph depicts. Second, people generally don't hold a significant amount of dollars for a significant amount, further diminishing the effects of the depreciation shown.  Wealth is invested into assets in search of yield.  The whole depreciation argument has always been grossly overstated.

Are you defending US dollar right now? I mean why would anyone really defend dollar on bitcointalk? But let's talk about how you are wrong just so we could maybe reel you back into the crypto world and remind you that fiats are horrible and that is why we are in crypto. You said "using a timeline longer than any human lived", so your point is that dollar didn't dropped that much in one life time and I sort of understand your logic there, if it was true that would have made sense.

Let's put the last 80 years as one life span? 80 years ago was 1941 closest to that we have is 1935 and 1947, both of which are pretty close to 1 dollar of that day having purchasing power of 20 dollar today. That is just one life span. Want to see second? 80 years before that was 1860, it was literally the EXACT SAME 80 years before that. You see, dollar lost its power, it was consistent and powerful, 80 years ago it was beautiful, so beautiful that it kept its power for 150 years, what happened? It went down horrible in the last 40-50 years.

I'm not defending the dollar, I'm attacking horrible logic.  Using even your paired down examples, you're still grossly overstating the effects of depreciation any person experiences. The max depreciation any person could possibly experience is if they were born with all the money they'll ever have and then just hold it in fiat for their entire lives. If you can't see why that's such a faulty premise, I don't think I can break it down for you further.  But to summarize the most easily identifiable faults in this logic:  1) the majority of wealth is not held in fiat, it's held in other assets; 2) fiat is not held for significant amounts of time in significant amounts; 3) people are not born with all the money they'll ever have, they're constantly earning new money throughout their lives.  You're not having an honest discussion about what the depreciation of the dollar actually is, that's all I'm pointing out.  The chart that I was responding to is a joke for anyone looking for an honest discussion and not a circle jerk about crypto, which is largely what this board is; more of a cult where everyone just shouts down people who aren't in the cult rather than a bastion of intellectualism.