tag:blogger.com,1999:blog-2149523431587168680.post3297067091985182134..comments2024-09-03T23:03:49.949-04:00Comments on Oddball Stocks: The problem with compoundersNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2149523431587168680.post-21700915936926709552020-08-12T15:52:37.333-04:002020-08-12T15:52:37.333-04:00"The math above is simple, this appears to be..."The math above is simple, this appears to be a can't fail investing strategy. You can buy something that compounds at 20% a year at almost any price and as long as the company continues to compound at that rate you will have a market beating return. The break-even where the compounded return matches the market's historical return is about 200x initial earnings. That means as long as you pay under 200x earnings you should beat the market."<br /><br />How did you calculated the breakeven P/E multiple?joãohttps://www.blogger.com/profile/04169107148974489634noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-37273260803247734392018-09-24T13:21:27.084-04:002018-09-24T13:21:27.084-04:00The current obsession with compounders at any pric...The current obsession with compounders at any price is a bit odd. It is great for institutional investors as it provides a great narrative and illustrates their ability to do something that Joe Public can't i.e. find compounders therefore they can raise money.<br /><br />As you have pointed out, any additional due diligence refutes the notion that compounders are good investments. Michael Mauboussin's base rate book illustrated that there is mean reversion in earnings growth. <br /><br />From 1950 to 2015, only 7.5% of companies grew earning greater than 20% over a ten year period. Extrapolating the ten year statistics over a thirty year period means only 0.4% of companies grow earnings over 20% for a thirty year period. This does not take into account the survivorship bias in the study.<br /><br />Great post, it seems like you are spot on and the probability of making a good investment from buying a compounder at elevated prices is low. I'll stick to out of favor companies that offer a higher probability of success.<br /><br /> mmelendez78240https://www.blogger.com/profile/12524345680811444596noreply@blogger.com