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In theory, unless a business has a moat or competitive advantage that will keep it unusually profitable, changing its growth rate will not change its value much. Many companies don’t do anything unique that others can’t do, and they don’t put capital to work with special skill. For the general run of stocks, this means that the annuity formula works fine without any adjustment for growth. To calculate the value of growth, one must first estimate the period over which a firm maintains a competitive advantage that keeps profits elevated, and then the amount of profits. The period of competitive advantage ends before an enterprise fails, but they are related. Prosperous enterprises survive longer. If we had perfect foresight, what we would aim for is a low current price relative to earnings at some future date.
Big Money Thinks Small
Joel Tillinghast
All of the greats I’ve worked with—MJ, Kobe, Dwyane, Scottie, Charles, Hakeem, and so many others—understood the power of isolation. Not just as the inability to go out in public places for fear of causing a security issue, but as a mental state. No matter how many fans and cameras followed them around—regardless of how many were always watching their every move—they knew a huge part of their success was the ability to be mentally alone. Same for the executives and entrepreneurs I work with; each has a method for creating space and silence around himself or herself. The insurance executive who starts her day before the family gets up, so she has a couple of hours to think and plan without interruption… the pharmaceutical CEO who built a private gym for himself so he can work out in total solitude… the music producer who learned to fly his own airplane so he can literally take off and get away… they all crave silence and solitude. That’s their time to think, to plan, to escape the noise and chaos and demands of the outside world. Winning teaches you isolation. Because no one can understand what you’re going through.
Taking this idea further, consider what happens when you think you’re giving your best effort but in fact haven’t set your goals high enough. Artist Michelangelo wrote, “The greatest danger for most of us is not that our aim is too high, and we miss it, but that it is too low, and we reach it.”
The Ball's in Your Court
Michael Lewis
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