YouSaid · the spoken record

Michael Mauboussin

lines on the record: 114
first: 2021-12-17
most recent: 2021-12-17
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“And if done properly, buybacks can be slightly beneficial relative to dividends. But let's just say that these are a mechanism to return capital. The shareholders, albeit only those people who are sellers, are willing to take it. So here's my nerd out moment, which is I call it the value conservation concept. And this is really the key point. So let's say you have a company that's worth a thousand. I'm just making this up and you have X number of shares outstanding. And they decide they're going to return $200 to shareholders of the 1,200 is going to go to shareholders. By the way, it could be a dividend, it could be a buyback, it could be anything. It could be they could burn the cash in the parking lot, right? So the point is that the value of the firm after this is executed will go from $1,000 to $800.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let me, okay, if I'm allowed to nerd out just a bit, first of all. There is some, there should be some people should ask some psychological equivalence between dividends and buybacks. And in execution, they're different and distinct.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And all the everything out of What does even all that know? And I just leaving aside all that stuff actually, I thought my thought was going on the back of my head was much more about broader capital allocation and M&A activity, like what they bought and what they sold versus the buyback”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Man, the worst thing that we did is we bought back stock in the thirties. And I looked at him directly, and I was like, dude, you've done a lot worse stuff than that, right? And so you might say, okay, so wait, it's not the accounting fraud and the restatement.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, now we're going back to the intangible argument versus their cash flows. By the way, can I tell, I'll just tell a little, maybe just a little bit out of school, but it's okay. I'll tell this little out of school story. So in 2010. I was invited to give a talk to the senior executive team at General Electric. And this is right on the heels of the financial crisis, right? So this is a near-death experience, right, especially for the financial services division and so on and so forth, right? So this is not a good, you know, a very challenging time. And I don't know where the stock was at the time. This is all pre-split stuff, but it was probably in the low teens, something like that, right? And so I'm getting a cup of coffee before my presentation, and I bump into the chief financial officer, and he says”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“By the way, I just can't get over this controversy. For some reason, I don't understand why people seem so flummoxed by this issue because it seems pretty straightforward to me.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sluggish and go back to the late 1930s and early 1940s was another episode of very low discard. So the argument here is if you have companies that can grow strongly through this low interest rate or low discount rate environment, they actually get the double positives, right? One is the growth actually they do put up the numbers and second is they get the benefit of a low discount rate. So it's a combination. You sort of throw those things into the mix and you get sort of these sort of somewhat weird algorithms. But again whenever you're in early days, as we talked about before for electric vehicles or anything else, when you're in early days, there's a lot of jocking around for position and it's often not crystal clear who the ultimate winners or losers will be.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Kind of medium ones are associated with higher multiples. Yeah, that seems okay, but you'd expect this to be a continued linear relationship. So the low interest rates would be expected to really high multiples. And in fact, that's how it happened. Occurs back down and low interest rates are again effectively low price earnings multiples. So what's going on here? And the answer is usually, historically, low interest rates have been associated with sluggish growth.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then the other thing that makes this all very complicated is what's going on with interest rates and discount rates, right? And just I'll just spend one moment to explain this because it's actually quite interesting. If you go back and look at the history of interest rates, so on the x-axis, you would draw the history of real interest rates, so adjusted for inflation. And then on the y-axis, the price earnings multiples. And we can use like a Schiller cyclically adjusted price earnings multiples, an example. If you plot what PE multiples do, it's actually an inverted U. So saying this differently, high interest rates are associated with low multiples. That makes sense.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so prices sort of chasing around what George Soros and many others have talked about in the concept of reflexivity is these two things feed back to one another. So the very fact that one prices up and a company can sell equity, that allows it resources to pursue fundamentals in a way that it may not have been able to otherwise, right? And so on and so forth. By the way, the positive feedback works on the way up and it also can work on the way down just to be clear. So, I think even in electric vehicles, we've seen a big dose of this reflexivity.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So the answer is the market tends to get this broadly speaking, but for any particular company not particularly well. So that's my first comment is to say I will enter all this with some degree of humility. The second thing is there's a concept, and we talk about in the book as well, but it's very well-known concept of reflexivity, right? And so we tend to think about fundamentals and price action as two separate things, right? So people always draw the price is a thing that's squiggling all over the place and fundamentals as things sort of plods along, you know, and.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a great question, Barry. And a few things come to mind. The first thing I should mention, there's a fairly recent academic paper. This is within the last few months, and we can maybe post it on the show notes or something to this effect. And it studied about 10,000 IPOs since 1975. And then it actually went and tracked the future earnings and discounted them back to a present value and said, how close was the IPO price to the actual? Performance of the business over time. And it turns out, I mean, probably not shockingly, is that on average it was about right, but there is massive variance and there is massive skew.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“But again, if you look out five or ten or fifteen years, we talked before about these patterns of how industries evolve and so forth, machines have a very difficult time understanding those kinds of things, and humans can be, I think, a little bit more thoughtful about understanding who might win, who might lose, for what reasons, things like measuring culture and so on and so forth. So, yeah, I mean, it's always a tough game, and I just don't see it's going to be getting a ton easier over time.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“All that said that in active management, the notion of judgment's not going to go away anytime soon. And so, and judgment as distinct from like I'm just forecasting or that kind of stuff. But judgments are not going to go away. And so we need that, so when you think about in the very short term, so short-term trading where systematic strategies are just going to be, they're just so powerful. If tomorrow is going to be a lot like today or day after tomorrow, a lot like today, systematic things are going to be much better than humans in those kinds of environments.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think the answer to those questions are always no, that they're not the same markets and they're almost always grinding toward more efficiency, right? And I think that Vue did 2001 versus 1981 and go back over time, right? And for all the reasons you just cited that information is nearly costless to acquire and so forth. The one thing I'll just say that And I, by the way, am very enthusiastic about systematic strategies and quantitative tools. I think these are all things that even as discretionary investors, we need to integrate these things in a very thoughtful way.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I agree, and I think part of it is that there are two things that I particularly admire. One is there's a clear drive toward learning, being a learning organization. So there's a premium on people thinking and learning and so forth. And second is, I think he thinks a lot about trying to put people in a position to be as effective as they can be. So putting people in a position to do what they do well and what they're passionate about. And yeah, a great guy. And I love, I mean, I love that episode, by the way, and I think that he's, and he doesn't do a lot of those things, so it's great for you. No, that was a.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Dennis is awesome. Yeah. Not just not only a great investor, but a great guy. And these are things that tend to get underestimated, by the way, is that organizational cultures are really important. And, you know, he's just created an environment that I think is about as good an environment for an investment organization as possible.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's right. And he's been doing this for a long time, by the way. This is not like a recent thing for a long time.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“But even if you're willing, if you need to pay a little bit for it. By the way, there are other people like, you know, the Barry Dillers of the world. He's just another guy I just think of Barry Diller, and I think that guy understands options as well as anybody out there, right? And for the businesses. So there are certain executives that tend to do a really good job.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly right. And so the question would be something like If you think that is a potential for a business, and it's obviously not in the touch and feel today with things you can see today, should you be willing to pay for that and how should you be willing to pay for that? So we have a little section on real options and we talk about how to value those and some more formal techniques. But that is, leaving aside all the numbers and all that, the key is it's a mindset, right? And so there may be, especially, and by the way, if you can get this optionality for free, that's fantastic.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Made a lot of really interesting good capital allocation decisions. So that just shows for all the mistakes that he made and many even great executives make they are able to allocate capital effectively over time.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“A great option we want to exercise it, you need to be able to finance it, right? And so when those characteristics, those sort of boxes get checked, you may have a business with some real option value. Now, in that case, our study from 20 years ago was Amazon.com, and that was probably just dumb luck that we picked Amazon. But that turned out to be sort of one of the great examples of a real options company. And just think about AWS wasn't even a twinkle in anybody's eye in 2001 when we wrote that version of it. But we did identify it as a company that had a lot of uncertainty in what was going on, an executive who seemed to be pretty astute at figuring these things out. And along the way, I mean, he made many, many mistakes, Jeff Bezos did, but along the way he actually...”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Immediately say, okay, well, this doesn't make any sense. What we suggest is that for certain types of businesses, they may be candidates for having some real option value. So what is a real option? Well, we know about financial options, right? These are the right but not the obligations typically, for example, for a call option is to buy a particular stock at a particular price at a particular time. A real option is analogously for a real investment in a business, right? So this is for companies. And so what we argue is that certain types of businesses and the conditions are things like you want it to be an uncertain business, right? Because where there's a lot of certainty, there's not a lot of option value, right? So volatility is good for options. You want a management team that's thoughtful, so they need to know how to identify and cultivate and ultimately execute on those options. Market leaders tend to be good because often when there are opportunities, the market leader gets the first call. And then finally, you need access to capital. When you say, do we have...”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And a lot of technology. So the other thing is they're very good at technology and have always been very good at technology. So for instance, if I can help my franchisee understand their labor demands, their product demands, if I can make things uniform, in fact, they do a lot of the stuff that everything becomes very uniform in the kitchen, that allows for them to deliver efficiently, to work the kitchen fit, to hire people efficiently, all those kinds of things. And those are really difficult advantages to take away. And then they've been digital early, so ordering online and so on and so forth. The second example is Shopify, and that's a little bit of a different thing. We have a chapter dedicated to chapter eight, and it was called Beyond Discounted Cash Flow. And so sometimes you look at the businesses, you can touch and feel and you run the numbers on it. And it just, you have a hard time coming up with anything close to the current stock price.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, there's some minor exceptions to that, but that's for the most part true. And so what are the upsides and downsides to that basic thing? So dominoes was, and again, they are a very intangible, intensive business in the sense that the business we're looking at is it owns essentially is the franchisor, right? So they own all these things. And their primary function is basically to get ingredients and boxes to the different franchisees and then to advertise for everybody. So essentially they're an advertising machine and that's what they do.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so the nature of the business is pretty understandable, and it is a franchise business. It is a very beautiful business, and it's a nice business to explain also strategically because they've made a number of strategic decisions along the way that allow us to explain why their business has been good and their strategic behaviors. And by the way, strategy often boils down to things like trade-offs. And one of the big trade-offs that Domino's made early on, which they've been taken to task from from time to time, is that you don't eat there, right? You don't go to dominoes to eat. So take only take only take”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“They did. They did. And so the idea, so the truth of the matter is, Barry, like this is how the smoke-filled rooms, how decisions get made, were like, let's find a business that's pretty straightforward to understand that we hope we'll be around for a while. And if they leave, it'll be for reasons like they get bought out or something like that. So pizza.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. So maybe we should take those. We'll take those in turn because they're slightly different flavors of what we're trying to do. So domino's pizza was the case study. So the key is that when we go through the expectations investing process, understanding price implied expectations step one, step two is doing strategic and financial analysis. Step three is making buy and sell decisions. It's really nice to have a case study to make it concrete. Now the case study for the original book was Gateway 2000, which lasted for like three years after the boxes that were”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, you are, if you think about it, I mean, the formulation is that E times PE equals P, right? Right. And so what you're saying is in order to forecast price, you need to know the price, which is the numerator of the PE, right? So in a sense, there's a bit of a circular argument. So, I mean, I don't want to dwell too much on that. I think we've beaten up a little enough on multiples, but the point being, again, multiples are not valuation. They're shorthand for the valuation process. And with that shorthand are all the good things about saving time. And with that shorthand are all the bad things about limitations and biases and blind spots. And so if you do not, if you are not aware of those limitations and blind spots, you're going to be, I think, ill-served by using simplistic measures.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So on and so forth. And it turns out that they sort of simulated this, and it turns out this idea of trying things out and then winnowing is one of the best ways to learn about an environment. Isn't that cool? Right. So in a sense, what we're doing is these Cambrian explosions you described are methods, financial and technological and entrepreneurial methods to learn about the world and figure out what works.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“The first time I ever wrote about this, it was in actually in the context of neural development of children, and it turns out that the number of neurons in your brain actually don't change that much through your life. What changes radically is the number of synaptic connections between the neurons. And so from the time you're born to the time you're about two or three years old, there's this huge upswing in synaptic connections. So a three-year-old, if you've ever met him, they're not super efficient machines, but they're really open to the world. So learning languages. They're very curious about the world and so on and so forth, but they're inefficient. And so what happens then is this, it's called the Hebian process. You use it or lose it. If the connection works, you use it. And if it doesn't, it gets pruned away. And you have this massive reduction in the number of synaptic connections. So scientists were interested in this. So they documented this whole process. They're like, well, this is kind of weird, though, right? Because the brain is a very costly mechanism. You know, it's 20% of your energy usage and this big thing on top of your head and you're vulnerable.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like fooling yourself in Old Fogey and then referencing the Right. And the point being, we don't know a priori which ones are going to succeed or fail, right? It gets sorted out. It's sort of a big, messy sorting out process. So I think that's a little bit part of what's going on. So things like, I mean, electric vehicles, this is like the canonical example of how this works, right? And, you know, the main academic on this, I know Dan's book's actually a really good book and an interesting one, but sort of the main academic on this is a guy named Stephen Klepper, who was a professor at Carnegie Mellon, and Clepper has wrote very seriously about this and documented, as you pointed out, all these basic. So it's the flow of talent. It's the flow of money. It's the flow of entrepreneurs to try to solve problems with some new tools at their disposal, not knowing in advance what's going to work. By the way, this now will nerd out for just one second.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And people go, This is all crazy and wasteful, right? Okay, what happens is then eventually the market sorts this out, almost think of it as a Darwinian process. And then you have the come down the back end. So there's a lot of exit through companies going bankrupt or consolidation and so on and so forth. The market determines what is legitimate, what is not. And lots of things go to zero, but at the end of it, what distills out is something new and something important. So, and this is sort of standard setting as well. So I think that's a good example of what's going on in crypto. I mean, to me, that whole complex. Something that's very real. It's going to be with us. Much of what's going on out there is not going to survive, but there will be things that survive and we'll be making important contributions to our economy.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then the third area Cryptos, decentralized finance, part of what I think is going on with the electric vehicle market and so forth. And there is a very, there I think what we're seeing is a very, very old and very well-known pattern, which is as new industries develop, the very common pattern is you see a huge upswing in the number of participants and really experiments. So it's lots of new entrants, lots of money flows in, lots of people trying out weird and wacky stuff. By the way, it wasn't that long ago, Barry, you remember this in the dot-com, same kind of thing, right?”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, when I peer out of the world today, I guess I would actually think that I sort of think of the world in sort of three different buckets. The first bucket is sort of the normal bucket, where I think that notwithstanding we have some obviously a little bit of zany stuff, most of the stuff out there is pretty solid, right? Like pretty normal. And then the second bucket might be where I put things like the meme stocks and so forth. These would be sort of the momentum. And in our language, we call these sort of diversity breakdowns. People correlate their behaviors in certain ways. And by the way, there's some language in the book that helps talk about this things like reflexivity and so forth. So this would be the GameStops of the world in AMCs and so forth. And by the way, many of these companies have actually done very sensible things, which is they've sold raised capital.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're sort of two levels of comments one is I think it's important I'm going to sound like an old an old fogie here but I think it's important to make a distinction between speculating and investing and by the way and this is without any sort of moral judgment so this is just you know I was trying to make this demarcation without judgment right a speculator is someone who buys something in the hope that it goes up An investor, someone who buys a partial stake in a business, right? It's a very different mindset. And so if the market's shut down for three years or whatever, you wouldn't care because you own part of a business, right? So this is almost, again, the barriers the investor versus as a proprietor of a business, right? You think about the value of the business. It's a very different, as you know. It's a very different mindset.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's why they're useful, and that's why we use them. What's limiting about heuristics or shorthands is they have biases, right? And so the key is not to never use them. The key is to understand where their limitations lie. And I think that's where people get, can be a little bit lazy around the edges and just sort of say like, this thing's always traded at 20 times this, and so it should be 20 times this. That's not really, you want to go back to the core ideas.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, not at all. I mean, I think that the answer is the way I might say this differently is that free cash flow is the ultimate thing that we care about. All the other stuff you just mentioned in terms of earnings and multiples and so forth, those are all proxies. They try to get to the same rough thing. So they're short of shorthands, right? And by the way, I mean, you've had the great Danny Conman with you, right? What's good about shorthands? What's good about heuristics is they save you time”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And the key to net in the acronym is notepad. The key to notat is that it's the unlevered cash earnings of a business. So unlevered means there's no reckoning for financial leverage at this point, and it's cash earnings, right? So you're taking out all the cash consorts. And that's a beautiful number to know. And then investment is all the investment's the company needs to make, including working capital changes and capebacks and so on and so forth. So free cash flow is sort of the bottom line number. And by the way, even when we make adjustments to intangibles, what we're doing is essentially making earnings higher, notepad higher, and we're making investments higher. Free cash flows sort of the bottom line that doesn't change. And that's the number we try to keep our eye on. So you remember your high school basketball coach, I'd keep your eye on the hips, right? Because everything's going to follow the hips. That is the hips of finance, right? Which is free cash flow. That's the number you want to keep your eye on.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so, yeah. So free cash flow is basically net operating profit after taxes, which is a rough measure of earnings, right? It's a little bit more formal, but a rough measure of earnings.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly dog coins, and we just let it roll. So that's our approach. It's been speculative, but it's been working out. It's been working out great. That's through a deep value analysis.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I mean, earnings are just part of the equation, right? And so we argue very early on in the book that earnings tell you very little. In fact, the appendix to chapter one shows, again, that earnings by themselves do not even tell you about value or value creation. So what we focus on is a very standard finance way to think about this, which is free cash flow. And free cash flow is the pool available, a pool of capital available to all capital providers. Barry, besides doing all the stuff you do, you're a business owner, so you know exactly how this. You have money coming in and money going out, and you sort of know how to think about this kind of stuff.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I love to see that. It makes sense. It makes complete sense to me. And again, it's just another indication of how things have changed, right? Whereas we may have said a generation or two before, if those factories are popping up and those good blue color jobs, right? Now you're saying something different is sort of the leading indicator of future wealth creation. That's right.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Always say the job of an investor is to understand the magnitude of investment and the return on investments to understand future profits. And so for a company like Amazon, they're earning a lot more than people, at least what they seem to report, but they're also investing a lot more. You know, without commentary. So, this is the whole thing about the market used to trade at this multiple. It's just the underlying. Nature of our markets, our businesses, our enterprises are so different today that I think that those sort of comparisons seem to be very simplistic and then just throw in the whole interest rate thing as another curveball to kind of complicate. How do you calculate the cost?”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. Now, we could quibble about the details of it, so on and so forth, but basically that is, yeah, no, that's exactly right. And the EBITDA numbers don't quite double, but they close to double. And so now the flip side of all that, that's the earnings are better, but let's also recognize the investments are a lot higher than what is reported to.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you amortize, if you built all scheduled and amortize it, it still comes out to $19 billion of net profit increase. Now, Amazon's profits last year were about $20 billion. So just if you accept this, you just doubled the profit.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Using traditional multiples, you get a very different picture, and you know, we recently wrote a report called Classifying for Clarity, where we talked about, we argued that certain things should be restated in the statement of cash flows. And we use those our case study amazon.com, right? So one of these companies. And Amazon back our calculation or our estimate is that Amazon's intangible investments in 2020 were $44 billion. Astonishing.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, if you're focusing on cash flow, these things become much less important because we're getting to the ultimate root answer. But if you're simply using multiples or some sort of shorthand, you're going to just miss this very significant development.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right, and that's the whole point. So there, and by the way, even Walmart, Walmart for sure was an early user of technology, right? If you read Sam Walton's book, which probably everybody should, it's a fantastic. I reread that memoir just last year. It's just awesome. You know, they were early users of technology. So they were early intangible users as well. But you're exactly right. The vast majority of their investments were physical. You can kick it and so on and so forth. Whereas other companies, that is not the case. So yes, so that to me, that's a watershed change. And that's why earnings.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“All things being equal, the answer is earnings are a lot lower than they would otherwise be. I always like to point out that great companies like Walmart, great companies like Home Depot for the first 10 or 15 years they Republic had negative free cash flow, right? Which their investments were bigger than their earnings. So if they had positive earnings, was that a problem? No, it was fantastic, right? Because their investments had very high returns on capital. And so, and by the way, Walmart, for example, its first 15 years tripled the performance of the stock market, right? It crushed it. And when you do the, that's a substantial compounding advantage, right? But the problem is now we're conflating investments and expenses on the income statement and we don't see that we can't unpack those things.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source