Tech. Analysis vs. Value Investing vs. Growth Investing vs. Narrative Economy

[Tytanowy Janusz]

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.

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,". 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. "

[jaysabi]

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.

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,". 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.

[Tytanowy Janusz]

First, NFLX's PE ratio is around 80, not 500

Sorry. Was looking at wrong chart. You are right

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).

Just wanted to show a scale in simplest possible way.

which is what people who are valuing Netflix at 80 times earnings are doing

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.

[as.exchange]

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

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.

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.

[as.exchange]

First, NFLX's PE ratio is around 80, not 500

Sorry. Was looking at wrong chart. You are right

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).

Just wanted to show a scale in simplest possible way.

which is what people who are valuing Netflix at 80 times earnings are doing

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 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"

[Stedsm]

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.

[jaysabi]

which is what people who are valuing Netflix at 80 times earnings are doing

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.

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.

[jaysabi]

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

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.

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 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

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.

 
Buffett's Berkshire Hathaway invested $340 million to acquire 14,166,748 Class A shares of StoneCo, piggybacking on its IPO, at roughly $24 per share. The move raised eyebrows at the time, a departure from the type of company Buffett would typically choose. Reports later confirmed that it was one of Buffett's portfolio managers -- Todd Combs -- who had made the investment decision.

-https://www.fool.com/investing/2020/03/03/warren-buffett-backed-fintech-company-stoneco.aspx

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.)

[fiulpro]

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.

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 😂.

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.

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.

which is what people who are valuing Netflix at 80 times earnings are doing

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.

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.

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.

[as.exchange]

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.

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

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

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.

 
Buffett's Berkshire Hathaway invested $340 million to acquire 14,166,748 Class A shares of StoneCo, piggybacking on its IPO, at roughly $24 per share. The move raised eyebrows at the time, a departure from the type of company Buffett would typically choose. Reports later confirmed that it was one of Buffett's portfolio managers -- Todd Combs -- who had made the investment decision.

-https://www.fool.com/investing/2020/03/03/warren-buffett-backed-fintech-company-stoneco.aspx

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.)

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

[jaysabi]

which is what people who are valuing Netflix at 80 times earnings are doing

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.

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.

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.

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).

[jaysabi]

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.

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

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

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.

 
Buffett's Berkshire Hathaway invested $340 million to acquire 14,166,748 Class A shares of StoneCo, piggybacking on its IPO, at roughly $24 per share. The move raised eyebrows at the time, a departure from the type of company Buffett would typically choose. Reports later confirmed that it was one of Buffett's portfolio managers -- Todd Combs -- who had made the investment decision.

-https://www.fool.com/investing/2020/03/03/warren-buffett-backed-fintech-company-stoneco.aspx

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.)

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

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.

[davis196]

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
I'm not quite sure that technical and fundamental analysis are 100% obsolete though.

[Betwrong]

~
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).
~

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.

[Hydrogen]

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.

[as.exchange]

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
I'm not quite sure that technical and fundamental analysis are 100% obsolete though.

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 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

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.

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.

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 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.

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.

[Smartprofit]

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 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.

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.

[Hydrogen]

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



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.

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.

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.

[as.exchange]

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



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.

I agree with you. That's really great representation of PoW 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, 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, the novel is really great. That's the reason many kids in Russian schools are forced to read it 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.

[Smartprofit]

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."