I have not written anything for awhile. It seems that I am researching ten stocks at once which often pushes me into indecision paralysis. High conviction ideas are hard to come by, though we recently found a few which I’ll write about soon.
We are stress testing our portfolios for two additional risks which makes stock selection even more difficult: 1) extremely strong balance sheets – today’s recession, which is a consumer driven one, may last longer than the ones in the past. Thus as I mentioned before access to capital markets may turn into a privilege not a birthright. I want to own companies that don’t have a burden of debt and preferably suffer from a burden of cash. 2) normalizing profit margins, which in most cases today results in lower earnings and higher valuations (in my presentation I use Paccar (PCAR) as an example of an industrial “stuff” stock that may not be as cheap as it appears to be, see slide 35).
Here are two interviews I gave:
- BetterInvesting Magazine interview where I discuss the Absolute P/E framework. I developed that framework originally to answer a question so often asked by my students – “what is the right P/E for a stock”. Later I adapted that framework in our research process. I discuss that framework in the book in great detail, but I’ll say the same thing say in the book:
“My goal in this discussion is to provide the qualitative framework and illustrate its possible use with quantitative examples. Using the so-called precision of math, I am trying to illustrate the process of analysis, not a secret formula that will answer investors’ prayers (sorry). The quality of any model is as good as the inputs that go into the model, and this one is no different.
- Second is audio interview with Vinny Catalano, (here is a link) where I discuss range-bound markets and profit margins. I met Vinny when he moderated a CFA Society of Colorado forecast dinner in January. I was very impressed with his interviewer/moderator skills.