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

“Our estimate is for 2021 that intangibles will be more than two times tangible. So in the last 20 years alone, you could sort of say they started the race basically neck and neck, and now it's much, much more intangible. So why is that important? Why do we care about that? That's important because tangible assets, the way the accountants record them, is they're capitalized on the balance sheet, right? It's property, plant, and equipment, which we then depreciate over time. So it does show up in the income statement, but primarily in the form of depreciation. By contrast, intangible investments are fully expensed. Now, the most famous of these is research and development, and we've known that. And since the 1970s, the FASB decided that R&D should be expensed. And there's debate about, there's Bindle debate about that for a very long time. But now R&D is only a quarter of total intangible investment. So there's lots of other stuff that's going on. That's all expense. So what does that mean?”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Software code, all these kinds of things. Okay, right? So two to one tangible to intangible. At the time we wrote the book, so called 2001, 20 years ago, they were the first version of the book. They were at parody.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that is absolutely correct. But the nature of these companies have changed a little bit and the market caps and so forth. But again, I'm not sure that's a big story for earnings. I think the one that, I mean, accounting changes, but I think the really big one is this rise of intangibles that you pointed out. And just to give, well, first of all, let's go back a little bit even further in history. Back in the 1970s, tangible investment. So tangible physical things, think factories and trucks and machines, drills, all that, right? Those were twice the level of intangible investments, an intangible by definition non-physical. So think now branding.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, maybe we can parse these a little bit because I think the active to passive thing would affect, you know, if it affects anything, it would be things like, are markets more or less efficient and things like that. So I don't know that that's a big thing for what we're talking about in terms of earnings. And the other one is public to private and even since we wrote this book there, I think there are a third fewer public companies than there were 20 years ago”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Strategic and financial analysis to determine whether the company's going to outperform that expectations, underperform, or gee, it's going to be, I have no strong opinion one way or another. And then step three is to make buy, sell, and hold.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know Steven Chris? No, I do not. Anyway, he's an interesting guy, and he's written a lot, by the way. He wrote a chapter in a book called, it's called Christon Values. A 13-page chapter, which is one of the best chapters about investing I've ever read, even though it's about handicapping. And Chris sort of talks about, you know, it's about this mispricing between odds and performance and so forth. But one of the lines in there he loves, he says that I love. He says, you know, everybody thinks that they're doing this thing, but very few people actually do. And I think that's the same thing for investing. So when you explain expectations, investing, the basic principle, people go, yeah, well, it's kind of what I'm doing. And isn't it? And the answer is it's no and not really what you're doing, right? So there are really three steps in the process, which we'll probably get to. But one is to say, what has to happen for today's stock price to make sense, right? So that's just basically where is the bar set? And then step two is introducing sort of the more high falutin street.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's do these things backwards. And by the way, there's a fascinating guy who should get him on sometime. He's really interesting in a guy named Stephen Christ. Do you know Steven?”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So then we say we're going to reverse engineer what has to happen for that thing to make sense and then try to judge whether that is sensible. Now to me, the most powerful and vivid metaphor is the handicapper. So you go off to the horse races to figure out, and presuming you'd like to make money, there are two things that are really important, right? One is the odds on the tote board, which is telling you which horse or horses are likely to win. The second is how fast the horse is going to run. And so it's the combination of these two things that it's important, but often starting with a tote board is a very sensible thing because you say, all right, well, you know, is this a favorite or is this a long shot, whatever it is? So this is basically saying.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And what the premise of this book is obviously just to reverse the whole process and just say, like, there's only one thing we know for sure, and that's the stock price, right? Again, you may like it or not like it, it doesn't matter. It is something we know for sure.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so this, I mean, this gets to the heart of it. And, you know, Barry, I was trying to do a little bit, even in working on this book, I was trying to get a little bit of the psychology of this because it seems fascinating to me that people love to think that they can figure out the value. And then they're going to compare the value to the price, right? So they feel like their job is to figure out what's going on.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“That for sure is true. And then there's another component of it that's probably even more compelling, which is growing earnings is not synonymous with growing value. So saying that differently, if you invest in your business and you're earning exactly your cost to capital, growth doesn't make any, doesn't add any value whatsoever. And so earnings growth can be good. It can be bad. It can be indifferent. And so you just don't know that. So saying this differently, company A, company B, same earnings growth rates, but very different value creation prospects. You can't tell the multiples are going to be different and they should be different, but the earning number in and of itself doesn't tell you the answer.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Them, right? We may not agree or come down in the same place on these things, but at least we note we're dealing with versus putting together multiple, these two things that are neither of which on their own are very helpful.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Multiples are shorthand for what is a broader valuation process. And multiples embed in them lots of assumptions about how the world works, including assumptions about returns on capital and growth and so forth. And then, as we'll talk about in probably more detail, measures like earnings or even EBITDA themselves can be very unreliable measures or metrics of value creation. So when they say, oh, at x multiple, it looks like low expectations or it's cheap in quotation marks or it's expensive in quotation marks, they really don't know exactly. They haven't unpacked exactly what the story is. Whereas I think we'd all agree, at least in theory, that the value of a business is the present value of the cash flows. The argument I always like to make is let's lay bare on the table what those assumptions are, what the underlying economic assumptions are, and then debate.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think that it's interesting that when people talk about what a stock is worth, and you should correct me if you hear something differently, it's almost always some multiple of some sort of earnings metric of some PE.”
2021-12-17 · Masters in Business · Michael Mauboussin on How to Read Stock Prices (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source