Читать книгу Active Investing in the Age of Disruption - Evan L. Jones - Страница 32

One might say, the innovation cycle is clear: just buy companies with new technologies that are growing fast and hold on for great future success. That may work for the very top venture capital firms, but it has never been a winning strategy in the public equity markets. Venture capital company selection is more art than science, more vision then due diligence. The venture capital portfolio strategy is to invest behind 10 to 20 ideas and hope one or two of them grow into the next Google, Facebook, or Uber. The other 18 companies will go bankrupt or struggle for years hoping to return some small amount of capital. This strategy is very profitable for the top quintile of venture capital firms that can attract the top entrepreneurs and use their extensive human capital relationships to add value. Many lower-tier venture capital firms struggle, because their big winners are never quite big enough to cover the bankruptcies and they have fewer companies bought out at premium valuations.

Venture capital is one of the very few financial investment classes where one investor's dollar is worth more than another investor's. When individuals open their personal brokerage account and buy public company stock, they get the same price as the biggest asset manager in the world. The market is generally liquid and egalitarian. Although some activist or constructionist public investment firms may try to add value to the public companies they invest in, generally the management team succeeds or fails on their own. For 90+% of public equity investors, their value contribution to their portfolio companies is zero.

Venture capital (VC) investments are accessible only to the parties invited by the management team to negotiate in the potential investment. An investment from one of the premier VC firms is worth more to an entrepreneur than an investment from a local VC firm. A premier VC firm financial backing adds prestige to the young company and opens doors that would not otherwise open for the entrepreneurs. The VC market is not liquid or egalitarian. VC investing methodologies and processes will not work in the public markets

For a short period of time when markets are hot and capital is plentiful, greed will be the emotion of the day on Wall Street and high growth, potentially disruptive stocks, will outperform. This was the case in the 2010s. Unfortunately, through cycles, a strategy of investing in these stocks in the public markets will not succeed for very quantitative reasons.

Too much capital availability makes money flow to the wrong places.

—Howard Marks

First, by the time a company goes public it is not a secret. If they have a new technology or some exciting innovation, it is very well publicized. The company and its investors will make sure it is well publicized, because they are trying to get the best valuation possible when going public. This communication and (again) the egalitarian process of buying public stock mean an exciting new company will receive a very high valuation. By definition of buying at a very high valuation, you will not be able to extract the huge gain that a VC investor receives from a portfolio winner, because they were invested before the company was proven affording them a significantly lower valuation. The big winner for the venture capitalist that creates returns for their entire portfolio is often a 100 times and higher return. You are not going to receive that type of return in the public markets. Although the public markets are not strongly efficient, they are clearly much more efficient than private illiquid markets. Second, sheer size becomes a factor. When you invest in a company with $5 million in revenues, you might see it grow revenues 200 times and reach $1 billion in seven years, but if you invest in a public company with $1 billion in revenues, there is very little chance of seeing revenues reach $200 billion in seven years.

For these reasons, a public portfolio of all the high-growth, and therefore high-valuation stocks, will not outperform through cycles. The key here is through cycles. Growth companies can create outperformance if invested in at the right times and right points in a cycle. If you have done research on a high-growth company and get the opportunity to buy during a time when investors have become fearful of the future (causing a lower relative valuation), this may be a compelling, outperforming strategy. Taking a contrarian view and buying an asset at a reasonable valuation of its projected growth trajectory is potentially a good idea. It is the indiscriminate buying at any valuation that will not work over time. The outperformance we are focused on in these discussions is a repeatable, consistent outperformance through business and market cycles. It is, of course, possible to outperform with almost any strategy, if you time the market correctly, but generally this is not a consistent repeatable strategy. After monitoring hundreds of hedge fund managers over the years, it is only a small minority (maybe 5%) that demonstrate the ability to market time correctly over a long career.