Mauboussin: Corporate sales growth is more persistent and predictable than earnings
Michael Mauboussin · #28 Michael Mauboussin: A Decision Making Jedi · Jan 23, 2018 · at 5:09
Michael Mauboussin, author and investor, discusses how regression to the mean applies differently to corporate revenue growth versus earnings growth.
0:00 / 0:30exact quote · 30.7s
720p mp4 · rendered on demand · StarZero watermark
“In corporate performance, two measures that are very common for people to look at are Sales growth rates and earnings growth rates. And it turns out that sales growth rates are a lot more persistent. So you might say more indicative of some sort of underlying skill, perhaps related to the industry and so forth. Hence, they're much more predictable. So you don't have to regress growth rates as much as earnings, which themselves are actually not quite random, but quite close to random where regression happens really, really quickly.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Michael Mauboussin
Mauboussin: NBA outcomes rely on skill; hockey and baseball involve luck
“The NBA is the sport that's furthest from randomness, furthest from pure luck configuration, and sports like actually ice hockey and baseball are actually quite much closer to being random.”
Mauboussin: Senior executive decisions depend far more on luck than entry-level work
“Usually when you're a lower level worker, your job actually tends to have a higher skill component, right? So you're doing something, you're on an accounts receivable clerk and you're collecting accounts receivables, right? We can measure what we're doing. It'…”
Mauboussin: Network effects create increasing returns that defy economic mean reversion
“So we're taught in economics, microeconomics, and by the way, it's still largely true that, Returns on incremental capital tend to migrate toward the cost of capital, and typically the reason for that is competition, right? If you're generating, Shane, massive…”
Mauboussin: Overcome algorithm aversion by allowing minor human adjustments
“And it turns out, they said, there's a way to overcome this which I think makes enormous amounts of sense. And they said, the way you overcome this is you say to people, you're going to, your first answer is going to be what the algorithm tells you, right? Jus…”
Mauboussin: Only pay for franchise value in stable, low-churn industries
“You don't want to pay for you know, huge amount of competitive advantage.
In an industry where there's a ton of entry and exit, where market shares are very volatile, and by contrast, you might be much more willing to pay for franchise value for an industry w…”