Why Does The Logic Of “Buy Low And Sell High” No Longer Work?
“Internet company” is a particularly old-fashioned word, as if you were still immersed in the first decade of the century.
There are many people who will retort that it seems that many valuations of companies have gone up in the sky. Why should they go up so much if they have no profits? This kind of friend can take a look at the above article first.
The “technology” concept will be subverted by the “old technology” concept, and many people will be too quick to doubt the value of the old technology and the new concept.
If you don’t sell it for nearly ten years, it will work if you buy it high.
The economist’s September article, the age-old strategy of buying when share price is falling, also addresses this issue.
It seems that “growth stocks” runs through “value stocks”, and it seems that the last time it happened in the “Internet bubble era”. So many people begin to question whether we are in a bigger bubble. Is history reincarnated?
If you started to buy growth stock indexes in 1996, you should have steadily outperformed the so-called “value stocks” index in 24 years. Isn’t it a bit magical? Obviously it is a bubble (really broken), why stretched to more than 20 years also won the value?
I remember that in the past, there were always people who wanted to find the macro-economic laws by “carving out the boat and seeking the sword”, and then calculated that the interval between each financial crisis was almost 10 years. If there is such a rule, arbitrage people will be too comfortable. After 10 years of rest, then 2 or 3 years of hard work, and 10 years of rest, life will be over.
Yes, you heard me right. Life is over. Our life is so short. If you are in the “bubble” for more than 20 years, then you will stick to “value”. I don’t know if this is “unexamined life”.
(Nasdaq100 vs. Dow Jones Performance for the past 1 year)
To make a long story short, I think the biggest reason why growth stocks / technology stocks can outperform “value stocks” in the past 10 years is that the changes in business environment are far greater than the update of financial knowledge taught in our school and the changes in the calculation methods of accounting industry.
It is also mentioned in the previous article “thinking about streaming media: cost, scale and valuation”. Taking Netflix as an example, no matter how you look at it, you will feel that the risk is huge.
When Netflix completely transformed the streaming media, the high outsourcing cost and the business model relying entirely on membership fees were a pair of contradictions. Anyway, we could not see the day of profit. After the transformation of self-made content, the investment is increasing day by day, the debt is high, and the income is beyond the means. You can’t imagine how it’s going to make money, because it’s constantly doubling its spending on content.
From an accounting point of view, the goods are even worse, or can’t be understood. Once a film was made by a film company, how could you know if it was lost or earned when it was finally released. Neville makes a movie and doesn’t charge the box office at the end of the day…
Even if it’s straightforward, whether a piece of content makes money or not, you have to use the cost / number of new users to calculate. For example, the cost of a movie is $100 million. If the monthly subscription revenue is calculated ($10 a month), the cost can be recovered by 10 million new users. If the annual subscription income is calculated, the newly added users will be able to recover the cost. If the subscription income of two years is calculated, the newly added users will be able to recover the cost less than 500000? wait… Doesn’t that sound like a detour?
Netflix’s secret is that it needs to provide more than the demand in order to improve the bargaining power and retention rate, and use AI distribution to let content find people and improve the long tail value of content. That means it can make money in the end.
Yes, new businesses’ valuation, old valuation methods can not be calculated. The fundamental problem is here.
If you want to understand the account of new business, you can’t copy the knowledge in books, and you can’t use the traditional profit evaluation model.
Whether it is Tesla, Netflix, Roku, Zoom, they are all new enterprises that touch the change of business logic in different fields and different business environments.
Obviously, if we roughly divide them into “Internet stocks” or “growth stocks”, and then assume that they are “expensive” under the traditional rules, there will be problems. Because you can’t buy at the “low” of the traditional valuation, and then sell with the “high” of the traditional valuation.
Think of Apple. Isn’t this example fresh enough? What can we see? Breaking trillion Apple is not cheap. Why can we break two trillion? Is that not a bubble?
Apple is certainly not a bubble, because the market has long believed that apple is a Hard Suits Inc, but in essence, Apple has been a software company. This means that Apple’s entire revenue structure will change greatly after the realization of app store and even software services of the system (even if the revenue of hardware remains unchanged, software is of great significance for future revenue and profit promotion due to its high gross profit characteristics)
So when we hear “bubbles”, we should calm down and ponder whether this is “bubble” or a chance that you can’t understand at present.
That’s why so many people have missed out on the opportunities of the past 10 years, and that’s why the old “buy low, sell high” approach is no longer as effective.
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