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Subject:  Re: Let's Refine the P/S Discussion Date:  12/8/2018  6:30 PM
Author:  XMFBreakerTinker Number:  106441 of 115956

We can add Paycom to the list of sustained high multiples despite growth “only” at 25-30% but with ROE of 35%+!

As for MAstercard/Visa, that is 5 years of appreciation into a world economy that is removing cash and checks as the primary source of payment. Nearly every such transaction, whether through Square or Paypal or anyone, whether credit or debit goes through Mastercard or Visa. I would expect the multiple to increase as the TAM and the percent of the economy being paid for with said have materially grown.

Plus, as socialism and communism fade further and become more and more a minority (except within what appears to be the Democratic party base) capitalism has rooted around the world opening up economic prosperity to an unprecedent proportion of the world then has ever existed before. All, of course mostly using Mastercard and Visa.

I do admit with the inverted yield curve, Fed who has been over aggressive (how else to we go from the first time in a decade real growth, rising wages, etc. to an inverted yield curve! An overly aggressive Fed (and I would not put it past the Fed to have done so as a “resistance” move against Trump with the mid-terms. Call me paranoid).

The Fed has now stopped raising rates. At this pace they may have to reduce rates again before raising, but we will see. 2020 is a long ways away so there will be no bias towards any election to do the right thing (assuming that played a role, which I believe it did).

Back to admission...that it is much more likely that we trade in a range or go down from here. However, that overlooks a possible resolution to the trade war, or the Fed tapering down, etc. So nothing is written in stone.

As such, instead of getting back into the influence of daily talk and angst, until such time as something gets to the point that I need to sell it (changing fundamentals or valuation relative to fundamentals or simply irresistable opportunity I need to take advantage of) I am going to just do nothing but systematically add, up or down.

If the price to sale is too high, as long as fundamentals remains one year will take care of that. A year to accumulate. However, with high priced stocks, the trip form $3 billion to $12 billion is almost always a lot faster than from $12 billion to $24 billion. Things do not happen in a linear fashion. Thus is marketcap to opportunity remains compelling with continuing and accelerating fundamentals, I do not see why this is not the best strategy.

The alternative is to micromanagement, over analyze, get stuck in the talk of the moment etc. Instead of invest, but also keep one’s ears opened as well without obsessing over it.

Price to sale and valuations matter, but they matter within context. A $4 billion company is valued on a different metric than a $12 billion company that is within the same market. Further, optionality is always underestimated. Optionality is what made Amazon and then Microsoft the most valuable companies in the world (cloud titans). Optionality with Apple the same. Netflix the same (in fact its optionality originally killed the stock).

The problem with optionality is you do not always see it coming, but great management in great companies make it so.

About all I want to express on the subject. We have seen, at least this year the without exception counterintuitive results. I still state it is fundamentals (as I have defined it) in the end that is all, destiny is all, and that different valuation metrics become more useful depending on the context of where the stock stands within it valuation and exploitation of its business potential.

There is information within price to sales, and it is often counterintuitive What is cheap can get much cheaper. What is expensive can get more expensive. I see no correlation that the intuitive result is more likely, rather the opposite.

So, hopefully not too cryptic, that is my opinion, and willing to listen to further thoughts on the topic. I must admit, like with the counterintuitive relationship between price to sale and result, also the less I do the better I do as long as what I did to get there was well thought out.

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