You're saying Einhorn isn't a true value investor? Are you saying Buffett is wrong for saying all investing is value investing? There is no "formula" to value investing, only ways to estimate what a business is worth to a private owner. The point of investing is to buy securities that sell below intrinsic value, and often, it is the unattractive ones that sell at a discount. Making a confident decision requires thorough analysis. Did you read any source materials to confirm your analysis?
Well said.
My problem is that speculating isn't about being confident so much as it's about asserting confidence. I marvel sometimes at people who think there's no difference between operations analysis internally and wall street hype.... as if we're just sitting at our desk throwing darts to pick a target for P&L for the quarter or year and there are no real inputs taken into consideration. I don't walk into a meeting and go "Yes, this FEELS right!" Ok, sometimes I do... but that feeling itself isn't based on what I want the numbers to be. There are people who do base their feelings on what they want the numbers to be, and they're always asking the real analysts to come back with numbers they find more suitable.... that's not our job. It may be the job of a Wall Street monkey, but it's not the job of a business analyst whose job it is to steer execution strategy on operations and identify early warning signals if we need to adjust our sights/reforecast...
As you, dimsum, are aware (while others may not be).... There's no magic to coming within a hair's width of your estimates... I work for a company with fifty million customers. Currently we're in planning for the next fiscal year. I'm the one driving the discussion between finance and marketing as to what our business unit's historical and projected new and recurring revenue streams are going to look like to the tune of $440 million. Add up the other BU's analysts and these are mathematically based projections that come from what we know about our supply chain, about our customer behavior, about our sales funnels, at every level, not dart throwing games, that tell us if we're going to meet our 11% growth target for a $4.5 billion business. When we apply seasonality to those numbers, it's not some pedestrian guess... it's based on a very solid knowledge of what our customers do and what internal/external activity drives and/or may shift the spikes in our quarterly sales year in and year out.
Those numbers then roll out to the street. Can you imagine the absolute mayhem if one out of every five companies was even 5 percent off in their projections? It would be horrendous... but we knew which products were going to hit 96.7% of plan and which ones were going to crap the bed about six months ago. That was all baked in already.
So, this idea that a guy can't look at a series of operating results and inputs to operations I think, to be very honest, arises from a bit of ignorance and arrogance: ignorance as to how inputs to operating performance tick and tie together and how they're analyzed, and arrogance in thinking that just because they don't understand how it's done, there can't be any institutions, private equity firms, etc. who all understand these same things to that degree.
That's not to say the market never irrationally penalizes a security irrespective of its performance, but it's not true that performance is consistently strongly negatively correlated with market price... Generally, operating performance is recognizable... and operating performance among the manufacturing companies is one of the easiest things to evaluate/recognize.
Occasionally the market does temporarily penalize some securities for irrational reasons having nothing to do with operating performance.... and that's precisely the point. Those are the areas if inequity that a value investor seeks out, when everyone else is either looking the other way or actively panicking. If it becomes a further loss, we didn't risk as much to begin with.
The distance from the 47th floor of the Chrysler Building to the street will always be shorter than the distance from the top of the Empire State building to the bottom... how many more floors you can add upward depends on how solid a structural foundation exists.
But we have access to that data, whereas Street analysts don't unless they coax it out of someone.
