I was just curious if anyone knows of famous investors that don't do a ton of modeling to make investment decisions or if this is extremely uncommon. I only invest as a hobby and I spend most of my time going through earning call transcripts and going through the 10-K to understand the business qualitatively and to determine how major line items are being calculated from the footnotes (i.e. revenue, COGS, certain accounting provisions, etc.). If I ever do open up a spreadsheet, it's usually a very simple model using consensus estimates to reverse engineer the growth rates the market is effectively pricing in. From there, I just make a qualitative decision as to why these growth rates are low or high and assign a position size based on how confident I am in my thesis.
That's pretty much it. Most of my investments I make are me either trying to buy cyclicals toward the low point or established businesses that maybe have had a rough go recently and me trying to figure out whether or not the market is incorrectly assuming they'll never get back to steady-footing again. So in other words, it's very qualitative and based on understanding a few KPIs I think will materially drive the business and understanding the magnitude of those.
I ask this because everyone on Wall Street seems to value people building ridiculously complex spreadsheets, but I personally think it's excessive and doesn't really move the needle. I'm wondering if there are other investors who are seemingly much more qualitative like me that have been successful as well.
magellan fund peter lynch says "if you can't summarize your thesis on the back of a cocktail napkin, you don't know what you're talking about"
Yeah, there’s this investor out in Omaha who does something similar. Name escapes me right now, but think he’s had a good amount of success at it.
Pretty much every old school value investor
You’re doing it right. Every bad investor / financial thinker I’ve worked with has emphasized “robust” models. It’s a tell that they don’t know how to properly think about value. They think that the modeling skill set is somehow unique and that by performing that skill, they are doing the work that separates them from the average participant. Obviously this is asinine but I’ve come across many of these.
Buffett said it best. If you need to build a model to see that it’s a good deal, it’s not that good of a deal.
You mentioned that Wall Street places a high value on detailed models. That’s very true in IB, because the job is to make the client think that you’re doing something. So all of the modeling & powerpoint slides are serving the same purpose, which is to justify the fee. It’s not about getting to an answer.
If you really think about modeling, its what the company did (which they give you in the financials) and what you think it will do (which is what you're trying to determine). Thing is, if most people knew what was going to happen, they wouldn't model it. So its all expectations, and even if some people did a crazy model, it probably won't be looked at with high value.
For example, take Kelloggs, they sell food. In 2015 you probably would be looked at crazy if you built a 10 year model with a global crisis built in for 2020, but that happened. So most people just grow revenue by 3%.
Sam Zell is another similar name. This all said all these guys are very well read and have a a curiosity for what creates a good business always. So just cause Warren/Peter/Sam etc dont stare at indepth models all day does not mean they are not consistently thinking how business is evolving and how to value it.
Veritatis ducimus sequi voluptas. Nulla doloribus rerum dolorem molestias aut eius sed.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...