Value Investing needs a tweak: “extrinsic” value

There is no doubt if Value Investing is applied appropriately it yields great results over the longer term.
However, it has a weak point in that it would have missed the emergence of some of the world’s most valuable companies: Apple, Microsoft and Google are all in the top-5 of the FT-500.

This is especially opportune now, since in the coming decade some Chinese internet companies will grow almost certainly enter the top 10 of the world’s most valuable companies.

Read the whole article on my blog: http://bit.ly/VIA_extrval

ok roger, so now we look for HIGH GROWTH companies?

Also can, but still need to be careful of the value they bring to the biz model and their long term strategy.

(10-11-2014, 03:32 PM)johanvia Wrote: There is no doubt if Value Investing is applied appropriately it yields great results over the longer term.
However, it has a weak point in that it would have missed the emergence of some of the world’s most valuable companies: Apple, Microsoft and Google are all in the top-5 of the FT-500.

This is especially opportune now, since in the coming decade some Chinese internet companies will grow almost certainly enter the top 10 of the world’s most valuable companies.

Read the whole article on my blog: http://bit.ly/VIA_extrval

One of the key principle of value investing is compounded return i.e. Mr. Buffett's quote of "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1"

He has missed the Apple, Microsoft, and Google, but he also missed the Blackberry, Nokia, and many more failed yet promising tech companies e.g. Napster, America Online etc. etc.

WB does not miss those high tech companies.

He simply avoided them as he said he will not invest company that he does not understand.

The extrinsic value is in the “guaranteed growth”, because the dynamics of the market in which a company like that operates is very different from a normal one

If we look back over time, we can see that the major actors in markets with new
disruptive technologies almost always kept their leading position during the fastest growth period of their market.

The distinction between what part of future company growth is almost guaranteed and what part is an expectation from the company itself, makes judging its free cash flow projections easier and more reliable and therefore leads to a better assessment of the company’s value.

Generally, i get wary when i hear those words in bold above from various quotes in the article.

One thing is for certain, I will stay a winner if i stick around to enjoy these technological advances that capitalism is dishing out.
Nonetheless, nice article and looking forward to your next one. Btw, for people who don't use twitter (like me), i hope you put your blog on blog aggregator (http://thefinance.sg/)?

With hindsight, its very easy to spot the winners. But I personally think its tough looking forward. All the "old business" that are around like automobiles, aviation, "old tech" were all once "new".

Picking who would have been the winners on the other hand is much harder IMHO.

(10-11-2014, 11:23 PM)weijian Wrote: The extrinsic value is in the “guaranteed growth”, because the dynamics of the market in which a company like that operates is very different from a normal one

If we look back over time, we can see that the major actors in markets with new
disruptive technologies almost always kept their leading position during the fastest growth period of their market.

The distinction between what part of future company growth is almost guaranteed and what part is an expectation from the company itself, makes judging its free cash flow projections easier and more reliable and therefore leads to a better assessment of the company’s value.

Generally, i get wary when i hear those words in bold above from various quotes in the article.

One thing is for certain, I will stay a winner if i stick around to enjoy these technological advances that capitalism is dishing out.
Nonetheless, nice article and looking forward to your next one. Btw, for people who don't use twitter (like me), i hope you put your blog on blog aggregator (http://thefinance.sg/)?

thank you weijan for your comments. i will have a look at the site you mentioned.
regarding the "almost guaranteed" etc: the essence of my article is that, unlike many investment proposals of doubtful nature that use these words, with technological developments it is true. nobody doubted mobile phone growth or growth of internet, the question is only how fast, not if.

(11-11-2014, 06:21 AM)theasiareport Wrote: With hindsight, its very easy to spot the winners. But I personally think its tough looking forward. All the "old business" that are around like automobiles, aviation, "old tech" were all once "new".

Picking who would have been the winners on the other hand is much harder IMHO.

i agree asianreport it is not easy, otherwise everybody would be rich.
but think back about google 10 years ago, or FB 5 years ago, or microsoft 15 years ago. at these times they were all undisputed leaders in their fast growing segment and still had a large part of their growth ahead of them. so even wen you stepped in late you would still have made a great investment. (in the case of microsoft it would just have been reasonable because of it mediocre stock performance, in the case of FB you should have been a venture capitalist).

(10-11-2014, 03:44 PM)CityFarmer Wrote:

(10-11-2014, 03:32 PM)johanvia Wrote: There is no doubt if Value Investing is applied appropriately it yields great results over the longer term.
However, it has a weak point in that it would have missed the emergence of some of the world’s most valuable companies: Apple, Microsoft and Google are all in the top-5 of the FT-500.

This is especially opportune now, since in the coming decade some Chinese internet companies will grow almost certainly enter the top 10 of the world’s most valuable companies.

Read the whole article on my blog: http://bit.ly/VIA_extrval

One of the key principle of value investing is compounded return i.e. Mr. Buffett's quote of "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1"

He has missed the Apple, Microsoft, and Google, but he also missed the Blackberry, Nokia, and many more failed yet promising tech companies e.g. Napster, America Online etc. etc.

thanks for your remarks CityFarmer. some of the companies you mention would never have qualified for investment if you applied the rules in my article, but were at that time just leaders in some technology segment. besides, even Mr Buffett loses (a lot of) money from time to time... see Tesco.
i think we all agree with the rule, however getting reality to adhere to the rule is not always easy :-)

(10-11-2014, 03:32 PM)johanvia Wrote: There is no doubt if Value Investing is applied appropriately it yields great results over the longer term.
However, it has a weak point in that it would have missed the emergence of some of the world’s most valuable companies: Apple, Microsoft and Google are all in the top-5 of the FT-500.

It is usually the investor and not the investing principle. i.e. he has to internalize the investing principle and start to see things with his own eyes and think with his own mind, and emerge above the perceived "value investing" template.

Value investing does not require the investor to avoid Apple, Microsoft and Google. In fact, there are successful value investors who had bought into these.

The biggest problem with these stocks is Price.