While I admittedly don't know the business as well as you or @MarsC, I would put the probability of investing in PTM at these levels leading to a permanent erosion of your capital as low, with the obvious ceveat that no one has a crystal ball that can predict what this industry or business will look like more than a few years out."It also makes sense that the cheaper something gets, the more of it you buy all other things largely being equal (and I would love a price close to $3 too!). However, when you buy, you also want to identify as many things as possible in your view that will materially re-rate the value of your investment over time.""Identification of catalysts", I have found, is very much a construct of the financial services industry; a phrase that lends itself to making money off some unwitting client by compelling them into doing something.
No matter: I don't do "catalysts" very well.
So I don't even try.
"Can you see that with PTM given it continues to suffer from fund underperformance and capital outflows?""Continues" connotes what is happening now.
But the future is impossible to predict.
Why would you not at least sit on the sidelines and see how far this trend plays out before deciding to commit capital, even if the business surprises to the upside in one of these reporting periods and you are forced to pay up some % more for that certainty? It could very well be from levels much lower than the current share price. And then there is the opportunity cost of tying up your capital here as opposed to suitable alternatives in your investing universe."Why not sit on the sidelines to see how far something plays out?", you ask.
With respect, that's how stockbroking analysts talk and think (and why, I believe, their target prices invariably follow share prices around, instead of leading them).
You are effectively asking me why I am not turning down a stream of cash flow which I value at a higher level than what I'm being asked to pay for it.
I put it back to you, Why would I do that?
Is not the most fundamental tenet of wealth creation the act of buying things are prices below what they are worth?
2. That stream of cashflows is steady and dependable (fund management businesses have excellent economics, which makes them attractive if you back the right horse). My observation is that it has flatlined over a long period of time - you would ideally like to see steady growth in those metrics, even if that growth is modest. I'm sure you have many businesses in your portfolio that exhibit that characteristic.Sure, I invest in businesses whose cash flows grow over time.
But I also invest in some whose cash flows remain unchanged over time.
Heck, I invest in companies whose cash flows decline over time (!) if I believe I'm paying less
than those cash flows are really worth. (Why, as it happens, one such dubious quality company reported its results today; its operating cash flow over the past 3 years has gone, respectively, as follows: $33.7m, $28.4m, $25.9m. I don't mind saying that, despite the company in question generating that seemingly unappealing cash flow stream, it has been a more than satisfactory investment for me over the past 9 months.)
The issue - which you keep failing to appreciate, seemingly - is what I pay for those cash flow streams.
Given the persistent trends within the business, isn't it more likely that we see that FCF multiple come down further rather than not, unless we have performance that justifies a re-rating?Why would the FCF multiple necessarily go down further?
It might. But it might not.
I can't invest on the basis of guessing randomness correctly.
Besides, if it does so - for whatever reason - well then the hamburger got cheaper, so I buy more of 'em.
"3. I didn't mean to offer the PTM v MFG comparison as a specific binary choice, though it is far more relevant compared to a majority of the other listed businesses because they both operate in funds management. I don't know about your approach, but I am favourably disposed to investing in the leader in any industry even if I have to pay a premium for that ownership."Again, I'm in the business of buying cash flow streams.
If the asking price for that cash flow stream is greater than what that cash flow stream is worth (possibly because it happens that such a cash flow stream is generated by an "industry leader"), how does paying a premium for that cash flow stream create wealth for me and my family ... other than by hoping someone else will come along one day and be willing to pay me an even bigger premium?
Like I said, while history is not an accurate predictor of the future, it is often a good marker/signpost for things to come. As a funds management business, MFG has absolutely smoked PTM since the former's inception (which is not a trivial amount of time), and many of the broader trends that have favoured HD and its team in achieving massive FUM growth and performance have still not rolled over. He has also been a shrewd marketer, almost acting like a magnet for capital. Let's give credit where it is due (an enormous dollop of it at that given the returns he has produced for his backers).Yes, no doubt the Magellan story is a wonderful one and the people who are running it are highly commercial and smart.
I wish I had foreseen the vision and the spectacular outcome.
I missed out on that one.
But hey, I miss out on a great many other stocks that rise in spectacular fashion.
That's simply what happens.
I'm not trying to jag every ten-bagger that occurs.
All I am trying to do is generate 10%pa to 12%pa of appreciation in the value of my capital which, added to the ~4% dividend yield, results in a total investment return of around 14%pa to 16%pa.
Because, thanks to the force of compounding returns, doing that over time is a prolific wealth creator.
4. With that last statement, I was referring to the protracted underperformance of "value" style investing over "growth" style investing (loosely defined by relative earnings multiples), which is on its longest streak in history.Value-oriented managers who have stubbornly and dogmatically stuck to their guns over this period have left an enormous amount of money on the table compared to peers who were nimble and flexible enough to adapt to changing investor preferences and market conditions.At some point, those in the former camp will be rewarded and have their periods in the sun, but we must also acknowledge that there is enormous opportunity cost in terms of forgone returns (in this case 10 years and counting) in between.While I think it makes for good headlines and discussion on slow news days, which might help sell financial publications, this interminable Value-vs-Growth debate is not something with which I concern myself much.
My sense is that sometimes the one style "wins"; at other times, the other is on the ascendancy. That one of them is currently on a particularly long losing streak is not overly remarkable, I don't believe, other than out of passing interest.
As I have said before, if you describe yourself as a value investor, and you are not generating satisfactory investment returns in real terms over time, then you aren't really a value investor; you are something else.
"Which goes to say, don't fall in love with a Platinum just because it conforms to some investing philosophy/ideology that reinforces your* own beliefs that may have crystallised in your mind over a lifetime of investing, and, by the same token, be wary of dismissing Magellan and its founders. I sense a tinge of that in these threads over the months I have been following. I don't hold a position in either, so I don't have an agenda."Be assured that no part of my investing in PTM is because I have any sense of "value investor kinship" with them.
I'm investing on the basis one thing, and one thing only, and that is the cash flows that gets generated by them doing whatever it is they happen to do, and which appears in my bank account.
And it is not lost on me that those robust current cash flows are getting generated even while they have been doing things quite badly.
But, of course, I'm not so naive to believe that they can continue to do things badly to perpetuity.
But that there is a risk of that - however big or small that risk is - is the very reason the FCF yield on the market value of the equity is in excess of 700 basis points above the risk-free rate.
Otherwise, if there was no risk involved, the stock would be trading between $13.00 and $15.00 per share (representing a mere 100bp to 150bp FCF yield spread over the risk-free rate), instead of $4.00/share.
Weekend beckons.