The last couple of decades have seen a new stream of sources of information and insight with the emergence of social media or user generated content. Whilst books, journals, periodicals and news papers have contributed immensely over time, blogs, Ted talk videos, podcasts, etc have become a rich supplementary source. Whilst we have featured most of these sources at 3L-3S, for the first time we choose to feature a Twitter thread – by Michael Mauboussin, one of the most thoughtful investment analysts over the past three decades and an adjunct professor at the Columbia Business School. He tweeted this thread as he started this year’s course on Security analysis at the school – a course famously started by the legendary Benjamin Graham in 1927. Whilst the thread itself qualifies as a short read, the references to the research papers cited by Mauboussin makes it as good as accessing the whole course free on Twitter.
Some nuggets of investment wisdom:
On value investing: “People often think about value investing in one of two ways: (1) statistical factors – e.g., P/B, P/E; or (2) buying securities with prices below value. I am firmly in the second camp, although the approaches are not mutually exclusive Sometimes statistically cheap = good value. https://papers.ssrn.com/sol3/
On the shift in corporate investments from tangible to intangible: A big part of the story is the massive shift in the form of investment, from tangible to intangible. This means analysts have to go back to basics and figure out the *magnitude of investment* and the *return on investment,* whether on the IS or BS. Acknowledging this shift changes the discourse on corporate investment. “Recent studies examining Capex lament the declining trend in firms’ operating investments. The trend turns positive once the investment portion of Main SG&A is included.” https://papers.ssrn.com/sol3/
On the use of multiples for valuation: We spend a lot of time discussing the limitations of multiples for valuation. You earn the right to use a multiple only when you demonstrate that you understand the economic assumptions that are behind it.
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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