预期投资：利用短期世界中的优势

Expectations Investing Taking Advantage of a Short-Term World

June 6, 2006

Michael J. Mauboussin Chief Investment Strategist Legg Mason Capital Management

Barriers to Long-Term Thinking

Phenomenon

Psychology Availability bias Accounting versus economic focus Recency bias Betting on what has worked Stress Creates a short-term focus

Expectations Incentives Agency costs Agent/principal shift

Diversity breakdowns Expectations gaps

Groundwork

Groundwork Fundamentals versus expectations

Perhaps the single greatest error in the investment business is a failure to distinguish between knowledge of a company’s fundamentals and the expectations implied by the price.

Groundwork Fundamentals versus expectations The issue is not which horse in the race is the most likely winner, but which horse or horses are offering odds that exceed their actual chances of victory . . . This may sound elementary, and many players may think that they are following this principle, but few actually do. Under this mindset, everything but the odds fades from view. There is no such thing as “liking” a horse to win a race, only an attractive discrepancy between his chances and his price.

Steven Crist, “Crist on Value,” in Beyer, et al., Bet with the Best (New York: Daily Racing Form Press, 2001), 64.

Groundwork Fundamentals versus expectations

I defined variant perception as holding a well-founded view that was meaningfully different from the market consensus . . . Understanding market expectation was at least as important as, and often different from, the fundamental knowledge.

Michael Steinhardt, No Bull: My Life in and Out of Markets (New York: John Wiley & Sons, 2001), 129.

Groundwork Introduction  Investing, like many things in life, relies on expectations  Changes in expectations trigger stock price changes  The investor’s key task is to anticipate expectations revisions

Expectations Investing Introduction  What expectations?

 Are all expectation revisions the same?

 What’s the best way to anticipate expectations revision?

Expectations Investing Introduction  Expectations are based on long-term cash flow  Expectation revisions are not all the same  Investors need to wed competitive strategy and finance to best anticipate important revisions

Groundwork

Three myths

The market is EPS dictate value Myth short-term oriented

The market EPS tell us little Reality takes a about value long-term view P/E multiples determine value

P/E’s are a function of value

Groundwork ROIC and P/E multiples—theory Return on Invested Capital 4% 8% 16% 24%

4% 6.1x 12.5x 15.7x 16.7x

How the Market Values Stocks

Basics of Valuation First principles

(1) Cash flow

(2) Risk Value

(3) Forecast horizon

These drivers are expectational in the stock market

Basics of Valuation

Cash flow

• Volume

• Sales Pricing

• Expenses

• Leases Operating Cash Margin Earnings

• Tax Provision

• Deferred Taxes Cash

• Tax Shield Taxes

minus

• A/R ∆ Working

• Inventories Capital

• A/P

• Net PP&E Capital Investment

• Operating Leases Expenditures

Acquisitions/ Divestitures Free Cash Flow

Cash available for distribution to all claimholders

Basics of Valuation Cash flow as a % Amazon (2005) In $ millions Earnings Adjustment Cash Flow of income stmt item Revenues Net Sales 8490.0 Accounts receivable, net and other current assets (84.0)

8,406.0 99.0% Cost of Sales (6,451.0)

Inventories (104.0)

Accounts payable 274.0 Accrued expenses and other current liabilities 60.0 Additions to unearned revenue 156.0 Interest payable (6,065.0) 94.0% Depreciation and amortization Depreciation of fixed assets, including internal-use software and website development, and other amortization 121.0 Capital Expenditures: purchases of fixed assets, including internal-use software and website development (204.0) (83.0)

Operating Expenses Fullfillment (745.0) Marketing (198.0) Technology and content (451.0) General and administrative (166.0) Stock-based compensation 87.0 Amortization of previously unearned revenue (149.0) Other operating (income) expense (47.0) 7.0 Gains on sales of marketable securities (1.0) (1,663.0) 103.5% Interest income 44.0 Interest expense (92.0)

Non-cash interest expense and other 5.0 Other (expense) income, net 2.0 Remeasurements and other 42.0 (42.0) (41.0)

Provision (benefit) for income taxes (95.0)

Deferred income taxes 70.0 Cumulative effect of change in accounting principle 26.0 (26.0)

(25.0)

Reported Net Income 359.0 Operating Net Income 454.0 Cash Flow 529.0 116.5%

Basics of Valuation Cost of capital  Opportunity cost of capital providers  Cost of equity is greater than the cost of debt  Cost of capital can be tricky to estimate

Basics of Valuation Competitive advantage period (CAP)

Excess Returns

CAP

Time

 Period of time a company can generate excess returns on new investments

Basics of Valuation Competitive advantage period (CAP)

CFROI (%)

Years Forward After Quartile Ranking

1 2 3 4 Source: HOLT.

Basics of Valuation Competitive advantage period (CAP)

 Reversion to the mean fastest in fast-changing industries  Some companies and industries demonstrate persistence  CAPs cluster by investment neighborhood

Expectations Investing Process

Expectations Investing A fundamental shift in stock selection The Expectations Investing Steps

1. Estimate price-implied expectations

2. Identify expectations opportunities

3. Make buy and sell decisions

Expectations Investing Step 1: Estimate price implied expectations  Uses the sound DCF model  Bypasses need to forecast  Overcomes the shortcomings of traditional analysis (i.e., price/earnings ratio)

Expectations Investing Step 2: Identify expectations opportunities  Apply appropriate competitive strategy framework  Determine which expectations revisions matter most  Value neutral incremental returns  Value creating incremental growth

Expectations Investing Competitive strategy analysis  Five forces – assessing industry structure  Value chain – assessing activities and where companies create value  Innovator’s dilemma – why great companies fail  Information rules – contrast between physical and knowledge businesses  Game theory – capacity additions and pricing

Expectations Investing Expectations infrastructure Value Value Operating Triggers Factors Value Drivers

1 Sales Volume Growth Rate (%)

2 Price and Operating Mix Sales Profit 3 Margin (%)

Operating Leverage Incremental 4 Investment Economies Rate (%)

of Scale

5 Operating Cost Costs Efficiencies

6 Investments Investment Efficiencies

Expectations Investing Step 3: Make buy and sell decisions  Expected value analysis  Frequency of correctness is not the key  Magnitude of correctness matters

 Incorporate margin of safety  Turnover  Transaction costs  Taxes

 Consider decision-making pitfalls

Case Study Coca-Cola

Cash flow 6.5% EBITA growth 45% Incremental investment rate

Cost of capital 7.6% $44

CAP 12 years

Source: Value Line Investment Survey, May 5, 2006, and LMCM estimates.

Barriers to Long Term Thinking

Phenomenon Effect

Psychology Availability bias Accounting versus economic focus Recency bias Betting on what has worked Stress Creates a short-term focus

Expectations Incentives Agency costs Agent/principal shift

Diversity breakdowns Expectations gaps

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