Not only did they not have earnings. They were nowhere in sight. No prospect of them anytime soon.
Companies like Tesla, Roku and Carvana. Investments like Bitcoin. These were companies that worked on telling a great story to Wall Street - and to Cathie Wood and Tom Slater and their peers. They binged on the low cost capital that the market was throwing at them in order to build what looked like a fantastic future – at least their presentation slides make it look that way.
And all of that topped with an enormous dollop of hubris.
Chamath Pahalpitiya of Social Investors for example claimed on CNBC in 2018 "I started in 2011. In that time I've made 50 investments. I have only lost money on four. And we have returned more than twice what Berkshire Hathaway has returned in the same period. So I'm really proud of that."
I was on a conference call with a particularly well known and revered analyst of tech said that he did not pay attention to the price he paid - because all that counted was the future opportunity. And a participant in my VALUEx investment conference said that all that counted was Infinite TAM (total addressable market).
But the pinnacle for me of O’Shaugnessy’s idea that a bubble is a good idea taken too far was Oussama Amar, who with Nicolas Colin runs a business incubator. Writing for his blog he said:
“only a few words need to change in the definition of value investing to match the reality of early stage venture capital. The opportunities all early stage investors are trying to seize are those companies whose “value (sic) stock trades at a price below where it appears it should be, based on its founders’ talent and initial idea.”
REALLY?
Amar and those who share his worldview were seeking to define value investing to be anything they wanted it to be - without any reference to reality in some cases.
All they had to say was that the company traded at below where they wanted it to trade, and you could call it value. Value was no longer objectively determined. It was what you subjectively wanted it to be. No more careful investment research. No more channel checks, market research, supply chain analysis, or evaluation of a company’s current and future earnings power. No forensic accounting or examination of the quality of earnings. None of that counted.
All that counted was whether the analyst thought that the founders had a good idea and talent, and that therefore it traded at below where it should trade.
