Hi dan , as always an excellent analogy thoroughly enjoy reading it ..... What would u say in a scenario where though we got good on all the aspects length of hill , slope and type .....but if one the cliffs let's say valuation becomes extremely high and growth for next 15 ,20 years is baked in current price .......and we are not sure about slope of growth there after ....in such cases would it be good thing to still hang on ...
Would love to know your thoughts on this .... thank you ..
Glad you enjoyed the article. Great question and it's certainly a scenario that you can expect to run into over time with successful investments. While it's totally up to the individual on what returns they are targeting and what risks they're willing to assume, we would have a very hard time owning a stock whose growth for the next decade is already more than reflected in the valuation of the stock. If the potential valuation multiple contraction is likely to offset most or all of the growth in the business, it ceases to become attractive to us.
I think Buffett's recent sale of Apple is a great example of this; it seems that in his view, holding treasury bills at ~5% are likely to outperform Apple due to a high starting valuation and uninspiring growth prospects in relation to the starting valuation.
Hi dan , as always an excellent analogy thoroughly enjoy reading it ..... What would u say in a scenario where though we got good on all the aspects length of hill , slope and type .....but if one the cliffs let's say valuation becomes extremely high and growth for next 15 ,20 years is baked in current price .......and we are not sure about slope of growth there after ....in such cases would it be good thing to still hang on ...
Would love to know your thoughts on this .... thank you ..
Hi Sri,
Glad you enjoyed the article. Great question and it's certainly a scenario that you can expect to run into over time with successful investments. While it's totally up to the individual on what returns they are targeting and what risks they're willing to assume, we would have a very hard time owning a stock whose growth for the next decade is already more than reflected in the valuation of the stock. If the potential valuation multiple contraction is likely to offset most or all of the growth in the business, it ceases to become attractive to us.
I think Buffett's recent sale of Apple is a great example of this; it seems that in his view, holding treasury bills at ~5% are likely to outperform Apple due to a high starting valuation and uninspiring growth prospects in relation to the starting valuation.
Hopefully that's helpful.
🙏 ...thanks a lot for your input .....always a pleasure reading your blogs ....