Matein Khalid
Mr. Market is a metaphorical schizophrenic pendulum who swings between extremes of fear and greed, thus giving us a chance to make money at inflection points on both ends of the spectrum. So here we are in a surreal world of extreme fear on Nasdaq where the PEG ratios for Procter & Gamble is 5.4, for Coca Cola is 3.64, Johnny-Johnny is 2.4, Pepsi is 3.25, while the four horsemen of the Apocalypse, which I consider is the four best companies not just in the world but in the history of capitalism, all offer PEG ratios that make every value investing DNA in my nervous system go Radio Gaga.
As a portfolio manager, I am supposed to crave secular earnings growth/unassailable moats and turn cartwheels when Mr. Market’s irrational disexuberance gifts me the four best businesses ever built in the Milky Way at a PEG ratio just below 1. So I hit Microsoft for a sixer at 385, Amazon at 196 and Alphabet at 303 and am just waiting on another 5% down day on Meta to initiate a long somewhere 610-620.
In essence a portfolio manager has one great unknown and one great known variable. They are known as how much EPS growth the company will generate and how predictable is this future stream of earnings growth? The known variable is what am I willing to pay for this future stream of earning growth adjusted for an entire subjective predictability quotient. So when Mr. Softy, Google and Amazon offer me a PEG ratio just below 1, I do not hesitate. I act. This trade is a no-brainer in my risk-reward calculus but I concede that time, as usual, will have the last laugh since it is only when the tide goes out, do we discover who was skinny dipping beneath the tidal wave of Nasdaq’s twilight when the real money is to be made flipping off-plan launches as a prelude to flipping burgers beneath the golden arches of Mickey D!
Also published on Medium.
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