However, as ‘life can only be understood backwards, but must be lived forwards’, question whether it has only theoretical or besides practical application? To put it differently, although a company like GOOGL realised say 20% annualised growth for the past 20 years, reluctant to DCF the same growth for the next 20.
That is exactly the dilemma of investing. We only know in hindsight whether a slowdown was temporary or structural.
The practical use, at least for me, is not to pretend that I can forecast the next 20 years precisely. It is to think more clearly about how long the runway might last and how much confidence I really have in that assumption. That is why I prefer businesses where the runway is easier to judge.
Kinsale is a good example. It is the low-cost operator in a largely commodity-like industry, yet still has less than 2% market share. The underlying E&S market continues to grow and take share from the standard insurance market, while Kinsale should be able to gain share within E&S as long as it maintains its cost advantage. I still cannot know exactly how fast it will grow 10 or 20 years from now, but the ingredients behind a long runway are much easier to identify.
Great points and fully agree.
However, as ‘life can only be understood backwards, but must be lived forwards’, question whether it has only theoretical or besides practical application? To put it differently, although a company like GOOGL realised say 20% annualised growth for the past 20 years, reluctant to DCF the same growth for the next 20.
That is exactly the dilemma of investing. We only know in hindsight whether a slowdown was temporary or structural.
The practical use, at least for me, is not to pretend that I can forecast the next 20 years precisely. It is to think more clearly about how long the runway might last and how much confidence I really have in that assumption. That is why I prefer businesses where the runway is easier to judge.
Kinsale is a good example. It is the low-cost operator in a largely commodity-like industry, yet still has less than 2% market share. The underlying E&S market continues to grow and take share from the standard insurance market, while Kinsale should be able to gain share within E&S as long as it maintains its cost advantage. I still cannot know exactly how fast it will grow 10 or 20 years from now, but the ingredients behind a long runway are much easier to identify.