This is a quote from your articles I do agree with:
“Disdaining someone else for the style they choose makes as much sense as disdaining one who prefers Merlot to Chardonnay.”
The founder of XXXX Capital achieved a near 2 Sharpe over 10 years while working at Millenium and Worldquant and managing a staff of 40. He did it with statistical arb. strats with 20% daily portfolio turnover. Are you saying that you understand quantitative investing better then him or that his system is flawed and worse than yours?
I don’t think so, I think you are saying that most non-math geniuses shouldn’t try to copy him (it is a him), and I agree with that. But it sure seems like you are calling the above trader dumb?
And yes, I do know how to value a business. I built and sold a fairly large company. We prepared multiple valuation models for our business. We sought buyers. The buyers then prepared their own competing valuation models of the business based on how they could integrate our business with theirs and what that might be worth to them - and their desire to make money and told us all our valuations were wrong and this is what they would pay. We then negotiated and eventually reached a sale price. But it took years - because we both had to really want to do the deal. There was nothing in their analysis that considered the future ‘dividends’ they would receive. They were looking at the total returns they thought they could earn cash on cash.
I have also looked at or been pitched by several hundred start-ups and been on the board of a half dozen or so angel or venture tech backed companies. So, I think I know how to grow a business fairly well - and understand the basics of valuation. I also understand fairly well how businesses run and what works generally and what doesn’t. What matters most in VC deals is the size of the opp and quality of the team, AND the amount of capital chasing the deals. The macro ‘deal cycle’ is the single greatest driver of returns in this asset class, none of these relate to the future dividends.
So, I don’t agree at all with this statement or the many pages based on it.
“There is one destination at which all should aim, the present value of future expected dividends.”
Stock is ownership in a company. It is also a giant multiplayer game and recognition of the rules of that game.
At a bare minimum, I would strongly consider buying a stock (or company) I thought has $1000 million in assets and no earnings or debt or future ability at earnings or dividends, if it was selling for $100MM. This has nothing to do with earnings or dividends. It would have to do with the fact that I’d expect someone else to eventually pay something way more than $100 million to buy it’s assets, and I would expect to be able to make the difference.
I might also consider buying a stock that is surging upwards and has strong supporting volume surge and increasing positive tweets or news mentions, if I am a short-term momentum trader with a short holding period. I would know that this has nothing to do with future expected dividends. It’s based on statistical probabilities of other market players pushing this type of stocks price higher.
If I’m holding any public stock, all I really care about is the expected total return of the stock relative to the ‘volatility’ and downside risk over my anticipated holding period. In most cases with most current public stocks, that is more reflected by the predicted future market price changes of the shares, not expected future dividends. But in all cases, it’s the sum of dividends and price changes in the stock. To leave out a detailed analysis of possible causes of the expected future ‘price changes’ for an investor is a huge gap in your article.
And yes, I have read finance text books and thousands of academic articles and am aware of the foundations of what you are drawing on.
As another example, if I am a fundamental investor and think a company has a huge amount of strategic value (i.e. a customer database or ‘blocking value’) and/or assets a company might want to aquire - and that value is much more then the current stock price, and I think there are 2 or 3 potential companies that will start a bidding war and bid up it’s price, I will buy that stock - even if I expect future dividends paid out to be zero and earnings to be negative. This happens all the time - either for competitive blocking reasons, or talent grab reasons or IP gains, etc. People buy intellectual capital or teams or other assets. If I am an M&A guy, I may very well take speculative positions in these types of companies.
Good luck with your articles.