22 thoughts on “Stephen Penman: Value vs. Growth Investing and the Value Trap

  1. Summary:

    1. Value Trap is arrived because of basic accounting. Accountants will put Uncertain Investments/Profitability/R&D in the Income Statement and they are billed as an expense. You are not allowed to put future customers, or R&D, in the balance sheet because its illegal and youre a faggot.

    2. Everything safe and conservative is on the Balance sheet. Think basic Assets and Liabilities. Things you definitely own (like your cock) and things you definitely must repay (like a blowie to your neighbour)

    3. A Value Trap is found by only following P/E ratio and P/B (Price to Book) ratio. You are trading/investing against people who sucked off the Balance sheet and did other forms of research. Trying to make capital allocation decisions based off shitty 1-2 formula principals will get you bumjacked

    4. Everything we have studied is between 1900-2017 which was the American Century. If you bet on High Growth stocks, you can end up in the tail-end of 28.8% average return a year. The low-end (losers) is only 2% growth (this is a mega loser seeing as inflation eats cost, the risk free interest rate is 2-3%, and the S&P500 will give 7-10% a year)

    5. If you bet on Germany, Chinese, or other shit country stocks you will have a VERY different picture. You may only have growth at 20% max upside, but low-side can be -15% or -20%.

    6. Survivorship Bias — Betting on American growth stocks has mostly worked for American investors and American companies in comparison to other faggot countries. You dont hear about the countries with shitty growth returns because they're cunts

    And finally

    7. Case study – Amazon ; They are not unprofitable in 2015 (now in 2018 they make money). They were simply investing all of the profits in the Income Statement, into different ventures. Every year, Jeff B. was putting money into things like Drone software, Video Streaming, R&D for warehouses etc. Every single year, the Investment/Risk endeavour was billed as an Expense in the Income Statement…

    if it pays off, you win. If it doesnt, you got a dick in your mouth

  2. I still don't get it. :-/

    I went through the presentation and skimmed through the paper:
    https://www8.gsb.columbia.edu/ceasa/sites/ceasa/files/files/Value%20vs%20Growth%20November%202013.pdf

    … to no avail.

    His description of accountant's treatment of revenue recognition, advertising, R&D, start up cost (Starbuck example) are all fine.
    But they seem to all go to comfort the idea that RISK (growth) being an association to high PE and high Price/Book (ie low E/P and low Book/Price).

    What am I mising?

  3. Columbia Business School has the worst cameramen/directors ever.
    Needs to focus more time on the projections of charts & tables when the lecturer refers to them. Following the lecturer is like following a fly.

  4. This dude talked so much but he never told us what is CAGR of his personal portfolio. This is only intellectual masturbation if you are not generating high CAGR using your research. And man who makes high CAGR does not bend like that every 30 second. Only waiters in 5 star hotels bend like that.

  5. Old town roads is full of weird comments…
    https://chrome.google.com/webstore/detail/threelly-ai-for-youtube/dfohlnjmjiipcppekkbhbabjbnikkibo

  6. An excellent writer and a terrible lecturer. The way he speaks to the audience, you'd think it was a kindergarten (perhaps that's how he sees it).

  7. The thing they don't teach you, is that B/P works ON AVERAGE because of the few stocks that shoot up, while MOST of the actually FAIL. The distribution is heavily skewed with the bulk of returns being negative and a long "tail" of outperformers. So if one wanted to capture the B/P effect, one would have to invest in all the stocks with a high B/P, or at least a very large chunk of the high B/P universe. This makes it a hard-to-implement, if at all possible, strategy.

  8. TL;DR; value is riskier. It has had a higher historical return because it happened to pay off positively. If you invest in value stocks you take on more risk which you may or may not be compensated for.
    A much simpler explanation than he gives is that the price is lower than other stocks given future expected earnings therefore it must be riskier. If it wasn’t, people would be willing to pay more to own it.

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