Why investors often overpay for the inflated growth projections of today's high flyers - taking on risk in the areas they see as safe
Transcript
Chris Davis:
As we think of risk in the market, it's curious to us how much we've seen over the course of our careers business models that could have been carved in stone being disrupted, particularly by innovation. You know, you think of newspapers and broadcast television, uh, but many consumer brands, some utilities. There's enormous risk when you go through periods of technological innovation and transformation. And we think the complacency that gets built-in to the assumption that today's leaders will be tomorrow's leaders, or today's safe havens, will be tomorrow's safe havens.
That's a premise that has disproven every year that we stay in it. And we think that the complacency and the safety that people feel in many of these companies could really be in for a rude awakening as we go through the years ahead.
Danton Goei:
When you think about the valuations out there, there are a lot of companies that are requiring, they are depending on very big projections going forward, right?
That are not earning near enough to justify the evaluations today and are expecting big leaps in earnings growth over the future. Those are companies that we are quite skeptical about just because of the risk reward and the lack of a margin of safety is very important. You know, the biggest risk really is not what you don't know, but is what you think you know that ends up being wrong and so when you feel like you're the safest and you're paying a big price for that perceived safety that is often the time when you are at the biggest risk.
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