Manifesto
“Few players take into consideration the principle of ever-changing cycles of results. The would-be professional player must always understand that the form moves away from the public’s knowledge.”
-Robert L. Bacon, Secrets of Professional Turf Betting
Long-only value investors in the 2000s got crushed in 2008. Then learned to short sell…. badly. And so they lost tons on their shorts in 2009 and 2010. Now they are all macro guys…. And the cycle goes on and on and on.
A security’s price is set by the current perceptions and behaviors of thousands of market participants. These participants have access to the same information, but they narrow their scope to what they believe is relevant, typically buying and selling securities according to a set method. There are high-frequency traders, chartists, value investors, retail gamblers and company insiders. Obviously a lot of money can be made by figuring out which perceptions are correct and incorrect.
If everyone in the market has the same information, I want something extra… Not “inside information” (whatever that is). I want to interview a company’s employees, former employees, competitors, and suppliers. My investment strategy attempts to identify securities that are misunderstood and thereby mispriced. I need to understand the dominant perception that explains the current price and then argue for a better perception. Stableboy Selections is all about finding the right perception.
-Derek
You haven’t published your email address, so I’m leaving my off-topic question as comment.
What do you think of the valuations of companies like Facebook, Groupon, and Twitter? (50+billion in the case of Facebook, 10b for Groupon) Do the capital requirements of these companies ($1 billion raised so far in the case of Facebook) seem reasonable? Similarly, smaller startups (e.g., Flipboard, Instagram) are receiving high valuations (as compared to the acquisition price of companies like Flickr 5 years ago ($35m to Yahoo)). Is the VC market acting rationally?
Sorry if this completely irrelevant to your blog… but your take on AAPL was persuasive.
This is not off topic.
The problem with judging the merits of a venture capital investment is that the outcome is so open ended. Very few work out over the long run, but the ones that do produce huge returns for investors. New Internet companies are usually dangerous both to own and to short. If you have some sort of edge in understanding the behavior of Internet users, you should be active in this area.
I do think Facebook is worth more than the others because it has the biggest network of users.
Hi Author,
Could you please add a way for readers to receive e-mail updates. I follow your blog and would appreciate it if you could do it.
Best,
David
I would like to receive email updates when there are new posts at your blog, thank you.
Two comments/questions ?
- Have you read Steve Crist’s books ?
- Klarman owns race horses….
Nope. I hadn’t heard of Steve Crist until your comment. Seems like an interesting person…
Pick up Crist’s book detailing his experience with Paremutual Betting.
The insights are useful when thinking about psychology & performance data.
Munger-esque.
Guys, totally unrelated here, but did you change the fonts on this site? Perhaps I am going blind, but they headlines are basically unreadable now (and I have big screens). This comment isn’t worth posting, just an FYI to your design team.
any way you could share your work on the reverse engineering…