I think your analogy is pertaining in the fact that, as in dating, most stocks are only held for a few months. The main difference though is that you are not frowned upon to hold more than one stock! In my view, searching for compounders with screeners is just an exercise in finding beautiful spreadsheets. Unfortunately, some financial metrics like growth are mean reverting and others can be distorted, and as you mention, qualitative factors like management are not screenable.
An interesting application I have been thinking about but haven’t had time to look into yet is to do the complete opposite that people are doing. Such as to screen on declining earnings, historically low margins, declining share price, high multiples, high leverage… whatever comes out of that will have low sentiment, low investor attention and a high chance of mean reversion. Not in order to buy fundamentally weak stocks randomly but to look for overlooked opportunities. In your dating analogy, it’s closer to the one night stand where you just hold for 2-3 years and cash out.
The intentionality is key here! It is not the same to buy a stock at depressed valuation with a 2-5 year exit than to chase the best looking stocks. The stocks that are worth holding for 1-2 decades are rare. If you have 380Bn in cash on the other hand, you have a different problem than most people…
Your reply reminds me of the old very amusing anecdote about the beautiful girl in New York looking to hook up with a rich man.
“I’m a beautiful (spectacularly beautiful) 25 year old girl,” she wrote on a dating app, and she described herself as an “enterprising young woman.”
“I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all… I am looking for MARRIAGE ONLY… I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth. I can't seem to find any eligible bachelors matching my requirements. What am I doing wrong?”
A banker offers his sage advice:
"I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament. Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.
Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity … in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!
So, in economic terms you are a depreciating asset and I am an improving asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest.
So in Wall Street terms, we would call you a trading position, not a buy and hold … hence the rub … marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.
Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.
With all that said, I must say you’re going about it the right way. You're a classic pump and dump.
By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation."
Great article ! This is so true. It really is. The numbers are all there sometimes. The company is profitable. But the business isn't always one you want to root for or even be associated with. Great analogy James. Don't force things in life.
I think your analogy is pertaining in the fact that, as in dating, most stocks are only held for a few months. The main difference though is that you are not frowned upon to hold more than one stock! In my view, searching for compounders with screeners is just an exercise in finding beautiful spreadsheets. Unfortunately, some financial metrics like growth are mean reverting and others can be distorted, and as you mention, qualitative factors like management are not screenable.
An interesting application I have been thinking about but haven’t had time to look into yet is to do the complete opposite that people are doing. Such as to screen on declining earnings, historically low margins, declining share price, high multiples, high leverage… whatever comes out of that will have low sentiment, low investor attention and a high chance of mean reversion. Not in order to buy fundamentally weak stocks randomly but to look for overlooked opportunities. In your dating analogy, it’s closer to the one night stand where you just hold for 2-3 years and cash out.
The intentionality is key here! It is not the same to buy a stock at depressed valuation with a 2-5 year exit than to chase the best looking stocks. The stocks that are worth holding for 1-2 decades are rare. If you have 380Bn in cash on the other hand, you have a different problem than most people…
Your reply reminds me of the old very amusing anecdote about the beautiful girl in New York looking to hook up with a rich man.
“I’m a beautiful (spectacularly beautiful) 25 year old girl,” she wrote on a dating app, and she described herself as an “enterprising young woman.”
“I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all… I am looking for MARRIAGE ONLY… I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth. I can't seem to find any eligible bachelors matching my requirements. What am I doing wrong?”
A banker offers his sage advice:
"I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament. Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.
Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity … in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!
So, in economic terms you are a depreciating asset and I am an improving asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest.
So in Wall Street terms, we would call you a trading position, not a buy and hold … hence the rub … marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.
Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K hasn’t found you, if not only for a tryout.
With all that said, I must say you’re going about it the right way. You're a classic pump and dump.
By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation."
Genius 👏
Great article ! This is so true. It really is. The numbers are all there sometimes. The company is profitable. But the business isn't always one you want to root for or even be associated with. Great analogy James. Don't force things in life.