Comment by stereolambda | Hacker News Reader

Comment by stereolambda | Hacker News Reader

Older RoaringKitty YT spreadsheet videos (before he became all about GME and before much of anyone watched his streams) are interesting to watch for a person casually interested in finance. They are very nerdy in discussing his approach to investing, tools etc. and don't present any clear recipes. He had/probably still has a biggish public portfolio of stocks and seemed to base it on financial analysis applying the value investing style. I thought this style is pretty much dead, because market efficiency has increased compared to the times when Benjamin Graham analysed securities by hand. (Unless you have the name recognition and capital of Buffett.)

I don't know if all this was completely sincere on RoaringKitty's part. Personally I believe that he mostly was at that time. Possibly he got carried away by money and fame later. But I 1) don't have to decide it for any official body 2) was never long GME, it was already too expensive (risky) compared to fundamentals when I learned of the story. What I'm trying to say is: fraudsters tend to want to sell you something, and at least it seemed that you weren't sold anything by RK.

I can get recommendations on in-depth (practical), interesting, non-pushy financial content for casual viewer. Please don't say Matt Levine, he's a (great) commentator not a practitioner.

Also, I think everyone interested is aware that no one should expect money from active investing, you should use something like index funds first while already having a comfortable amount of money in safer assets etc. That's why I say casually.

Gill is a licensed broker carrying five licenses while working for a broker, all of which prohibit making public stock recommendations.

> ...applying the value investing style. I thought this style is pretty much dead, because market efficiency has increased compared to the times when Benjamin Graham analysed securities by hand

Do you mean the manual part has gone out of style or fundamental analysis altogether?

My knowledge on finance/accounting is extremely limited and after watching some of his videos back in November, I took for granted that this is how this type of investors operate.

What I mean is this flowchart:

use a financial model like Discounted Cash Flow for finding companies that are "objectively" severely undervalued -> buy them -> wait X years until they reach their "fair price" that you calculated at the start -> sell for a profit

Aswath Damodaran has some online academic content on valuation in that style.

The main problem nowadays is the "severely undervalued" part. People in general know too much to severely undervalue companies. The RoaringKitty's GME thesis was based on strong fundamentals, but also on his contrarian belief that they can still flourish despite being a brick-and-mortar business. It's interesting to see if he was right, but it's still a gamble. Anyway, the Reddit frenzy turned the whole story of his GME thesis into the craziness that we all know.

(Another problem is market reaching the "fair price", good luck with that?)

edit: Okay, so to better answer your question, RK at the beginning said that he is inspired by value investing but he doesn't apply it purely. As to fundamental analysis, I think most people do it but rarely use it in the specific way outlined above.

No that model of investing is still very much alive. It's the basis of every long/short equity hedge fund. The successful ones do it in a more sophisticated way with some additional quantitative and data-driven analysis. But it's essentially the same model.

All long term investing is fundamental based investing, and the market is just as inefficient now as when the Graham was writing.

Checkout Michael Burry as a more recent successful value investor, He was up on the market 400%+ over his first five years before The Big Short.

> use a financial model like Discounted Cash Flow for finding companies that are "objectively" severely undervalued -> buy them -> wait X years until they reach their "fair price" that you calculated at the start -> sell for a profit

The math for discounting future cash flows may be objective, but every investor will come up with a different estimate of future cash flows. People in general don't "know too much to severely undervalue companies", because this implies future risks and growth are knowable. People may know how to read balance sheets, but very few are any good at forecasting risks and growth.

What's missing from your flow chart is "produce a quantifiable thesis for growth/risk that gives you a current valuation, judge the precision of this valuation and the uncertainty of the price/value gap closing, make your bet".

> ...applying the value investing style. I thought this style is pretty much dead, because market efficiency has increased compared to the times when Benjamin Graham analysed securities by hand

I thouhgt this style is pretty much dead, because the Fed is out of control stimulating the markets. Even purchasing bonds and ETFs. As if they embraced the "stonks only go up" meme.

But what about the US dollar? Hmm...

In my understanding, the fact that growth/expensive stocks rise has only an indirect influence on value/cheap stocks being worse investments. Nowadays, anyone can easily access and scan in aggregate financials and financial indicators. In the middle of the 20th century, you had to do it on paper with each stock. It was a bigger edge. So it was easier to notice something that others didn't.

Still (again, in my understanding) there's some sense in assuming that lots of cash and low debt in the company (compared to the ticker price) at least limit your downside a little, when the price is at the rock bottom. Doesn't mean there's a potential for profit, because stock prices are irrational.

> Please don't say Matt Levine, he's a (great) commentator not a practitioner.

He’s a former practitioner and alum of two extremely prestigious firms: Wachtell and Goldman. He definitely knows what he’s talking about.

This is true. What I meant is that he writes about interesting stuff that happens on markets and thought experiments, and less about the practice of investing. That's because he himself does the correct, boring thing (index funds) and who wants to read about that every day. So maybe I had in mind more 'investing' than 'finance'.

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