The ‘To the Moon’ Crash Is Coming⁠↗

People are saying that value investing is dead. That Warren Buffett and Charlie Munger are dead. They are not dead, and these ideas are not dead. They are timeless ideas. They are ideas that say that a business today is the present value of its future cash flows; that a business has a competitive advantage when there’s something structural in its supply, or its brand, or its pricing power, or its ability to have a monopoly on intellectual property or government licensing. There’s real things that make real businesses. And the value that you provide to the customer is then in the pricing power that you have and in the margins that you make. And contrary to the scarcity of the word today, profits are a great measure of the value that you provide to people.

Elon should not just be seen as a great engineer and great entrepreneur. He should be seen as the greatest investment banker in the history of capital markets. He raises more money on an annual basis than the Mormon Church does. And it’s just an amazing phenomenon. To me, he was the poster child of true belief and credulity and not caring about whether the company made profits. It was about the mission, and then it became about a rising stock price. And then it became, again, about facing off critics. Those, to me, are polar opposites of what you would want to study in learning what is a great business.

There’s always a case for optimism, optimism of human ambition and capability of great technological and scientific discoveries. But if your main argument for owning an asset is that other people will own it, not because it has intrinsic value, but because there’s a greater fool—i.e. let’s just hype it up and pump it and promote it until more and more fools get in—eventually, the smarter people that induced the fools are leaving them as the bag holders. That to me is the great inequity.

Today, there is an excess of excesses, and it’s not a prediction. It’s observable. It’s right in front of your face. So we decided then to focus on areas that we thought were neglected and scarce. And that would be my admonition today is, when the shit hits the fan, you want to be in the other room, and you want to be focused on stuff that other people haven’t yet found.

price is what you pay and value is what you get

the only thing the stock price measures is what other people believe. It doesn’t measure fundamental value or intrinsic value, which is something you can look at by analyzing a balance sheet or an income statement and seeing what the actual performance of a business is. You have companies that are losing more money with every sale they make. Meaning they have negative gross margins, and the more they sell, the more money they lose. They have to raise more money. You could show that you’re growing sales 50 percent or 100 percent, and you could be losing 75 percent or 125 percent. So, price is only a measure of belief and expectations. Fundamentals are a measure of value. That discrepancy between fundamentals and expectation is where great investors are made