15 Nov 2021 | Value Investing Substack NEWS
Value Investing Question of the Day #3, Truck Driver Reveals Why US Inflation Isn't Transitory, Beijing Stock Exchange Opens, Austria Lockdowns Its Unvaccinated, HBR How AI Is Changing The World
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Value Investing Question of The Day #3:
Buffett is a value investor - so why did he buy Amazon in 2019, even though it was trading at nearly 80x trailing PE at the time?
Value Investing according to its original definition - as coined by Benjamin Graham - does not mean buying stocks with cheap multiples (e.g. low PE ratio). Rather, it simply means to buy something for a price far lower than its intrinsic value - regardless of what its trailing earnings multiple might be at the time.
When Buffett bought Amazon in 2019, it’s true that it was trading at an extremely high trailing PE ration of almost 80x. However, Buffett’s buying of Amazon still fits the definition of Value Investing, as long as his estimate of its future cash flows far exceeded the price he was paying for them.
In other words, Buffett still considered Amazon a value investment despite its 80x PE ratio - because he thought it could grow its future cash flows far in excess of the price he was acquiring them at.
Stocks & Sectors:
People who want their deliveries in a reasonable time are going to have to start paying premium rates. There will be levels of priority, and each increase in rate premium essentially jumps that freight ahead of all the freight with lower or no premium rates. Unless the lack of shipping infrastructure is resolved, things will back up in a cascading effect to the point where if your products are going general freight, you might wait a month or two for delivery. It’s already starting. If you use truck shipping in any way, you’ve no doubt started to see the delays. Think about what’s going to happen to holiday season shipping.
What we have is a system with a limited amount of trucks and qualified drivers, many of whom are already working 14 hours a day (legally, the maximum they can), and now the supposed fix is to have them work 24 hours a day, every day, and not stop until the backlog is cleared. It’s not going to happen. It is not physically possible. There is no “cavalry” coming. No trucking companies are going to pay to register their trucks to haul containers for something that is supposedly so “short term,” because these same companies can get higher rate loads outside the ports. There is no extra capacity to be had, and it makes NO difference anyway, because If you can’t get a container unloaded at a warehouse, having drivers work 24/7/365 solves nothing.
In fact, the more things are backed up, the more every point of the supply chain cashes in. There is literally NO incentive to change, even if it means consumers have to do holiday shopping in July and pay triple for shipping. This is the new normal. All brought to you by the ‘experts’ running our supply chains.