‏‏‏‏‏‏مجلس ابوحمدان 🏚️🥷🏿استثمار القيمة ومدرسة القيمة

The Spaces explored practical equity investing through the lenses of value, momentum, and quality. Speakers contrasted fundamental value investing (à la Benjamin Graham and Warren Buffett) with trend-following and factor-based momentum, and discussed why many professionals blend styles to diversify drawdowns. They emphasized designing a written strategy with a defined edge, risk limits, and tolerable drawdowns, often using technical overlays like the 200-day moving average. A major thread covered valuation frameworks—discounted cash flow and earnings power, replacement cost, book vs intrinsic value, and sum-of-the-parts for holding companies—alongside accounting nuances such as cash flow quality, capex, consolidation effects, and the debate on capitalizing R&D in pharma/tech. The group highlighted capital allocation, serial acquirers’ track records, IPO cycles and their “honeymoon” pricing, and sector examples in tech, airlines, and chemicals. Behavioral discipline (avoiding analysis paralysis, overconfidence, and over/underreaction), the circle of competence, and curated reading (Intelligent Investor, Security Analysis, The Warren Buffett Way, The Little Book That Builds Wealth, Bruce Greenwald) rounded out a comprehensive playbook for building robust, hybrid investment processes.

Twitter Spaces Recap — Value, Momentum, and Building a Hybrid Investing Process

Session overview

A 2+ hour discussion (multi-lingual; largely English with Arabic code‑switching) focused on practical equity-investing strategy: value vs. momentum, risk management, valuation methods, accounting adjustments, factor overlays, process design, and investor psychology. The conversation repeatedly referenced classic investors (Warren Buffett, Charlie Munger, Benjamin Graham, Walter Schloss, Bill Miller, Bruce Greenwald) and modern factor/quant approaches.

Audio quality note: several segments were garbled; where meaning could be inferred from context, it is captured below. Names mentioned inside examples (e.g., Mohammed, Fahad, Abdallah, Jamie, Sophie, Richard, Alan) were often illustrative rather than confirmed speaker identities.

Participants (as heard)

• Speaker 2 (dominant host/commentator): led most thematic content (strategy choices, valuation frameworks, risk, accounting/holdco adjustments, factor overlays, reading list).
• Speaker 1: co-host/moderator; posed prompts and transitions; occasional strategy/process comments.
• Speakers 3, 4, 5, 6, 7, 8: guests with targeted inputs on valuation (replacement value, R&D capitalization), factor cycles, IPOs, cash flow analysis, and business combinations/holding company valuation.

Names referenced in examples (not necessarily speakers): Warren Buffett, Charlie Munger, Benjamin Graham, Walter Schloss, Bill Miller, Bruce Greenwald; companies: Google, Microsoft, Amazon, Tesla; themes like “Momentum Academy,” “200-day moving average,” “circle of competence.”

Agenda and flow (informal)

• Strategy selection: value, momentum, quality, trend-following; hybridization across styles.
• Risk management: drawdowns, stop losses, trend filters (200‑DMA), diversification.
• Valuation methods: DCF vs. multiples; earnings power; replacement value; quality and balance sheet strength; circles of competence.
• Accounting/adjustments: free cash flow vs. earnings; consolidation vs. equity method; holding companies and sum‑of‑the‑parts; R&D capitalization debate (pharma/tech).
• Style/factor cycles, IPO windows, and serial acquirers’ capital allocation.
• Process, team, and psychology: avoiding analysis paralysis and overconfidence.
• Reading and study roadmap.

Core themes and positions

• No single strategy wins always; value, momentum, quality, and macro/quant cycles rotate. A durable process blends edges and controls risk (Speaker 2).
• Start with your circle of competence; expand deliberately. Temperament and risk tolerance must match strategy (Speakers 2, 6).
• Risk management is a first‑class citizen: control drawdowns (trend filters like 200‑DMA), use tolerable stop‑losses, and diversify across styles/factors (Speaker 2).
• Cash flows > accounting optics: focus on economic free cash flow, capital intensity, and cash conversion; treat CAPEX and working capital realistically; beware aggressive accounting (Speaker 2).
• Replace pure book‑value heuristics for asset‑light tech/brand businesses; consider intangibles and replacement cost where relevant (Speakers 2, 4, 5).
• Holding company valuation needs look‑through economics and NAV/SOTP adjustments; recognize consolidation/equity method distortions (Speakers 2, 4, 8).
• IPOs often overpriced during hot cycles; expect a “honeymoon” phase; timing and discipline matter (Speakers 2, 6).
• Serial acquirers: governance and capital allocation are decisive; assess ROIC, purchase discipline, and impairment risk (Speakers 2, 4).

Detailed topic notes

1) Strategy selection: value vs. momentum vs. hybrid

• Speaker 2 argued against dogmatism: “value,” “momentum,” and “quality” each have periods of outperformance/underperformance. Build an approach that can survive style rotations.
• Hybrid approach endorsed:
  • Use fundamental valuation (quality/value) to define investable universe and expected return.
  • Overlay momentum/trend to manage entries/exits and reduce drawdowns (e.g., 200‑DMA filter).
  • Diversify across styles (“all‑weather” factor mix) to mitigate regime risk.
• Trend following can “absorb volatility drawdowns,” but expect whipsaws; position sizing and persistence are key (Speaker 2).
• Backtesting cautions: avoid overfitting; validate on out‑of‑sample data; respect transaction costs and slippage (Speaker 2; multiple mentions of “backchecking/study”).

2) Risk management and drawdown control

• Tools named: 200‑day moving average filter, explicit stop‑losses (pre‑defined “tolerable” levels), position sizing, diversification across assets/factors (Speaker 2).
• Objective: cap maximum drawdown so the process is survivable psychologically and financially; reduce time to recovery.
• Psychological anchors: acknowledge overconfidence, “information paralysis,” and style bias; pre‑commit rules to resist emotional overrides (Speaker 2).

3) Valuation frameworks and metrics

• Methods discussed:
  • DCF and earnings power: forecast owner earnings; apply conservative growth/discounts (Speakers 1, 2).
  • Multiples: EV/EBIT, EV/FCF, P/E as cross‑checks; beware “cheap for a reason.”
  • Quality focus: strong balance sheet, durable moats, high and sustainable ROIC, prudent capital allocation (Speakers 2, 4).
  • Replacement value: especially for asset‑heavy or specialized assets; estimate engineering/contractor rebuild cost, capacity to replicate customer relationships, and tacit know‑how (Speakers 4, 2). Note caveats for tech/brand‑intensive firms.
  • Intangibles & R&D: debate on capitalizing R&D (pharma/tech) to reflect economic asset build; stage‑gating and probability‑weighting mentioned as a practical lens (Speakers 5, 2).
• Metrics emphasized: free cash flow, cash conversion (FCF/EBITDA), capex intensity, working capital behavior, margins durability, leverage/coverage, and reinvestment runway (Speaker 2).
• Book value cautioned as insufficient for asset‑light/brand/tech; incorporate intangibles and earning power (Speakers 2, 4, 5).

4) Accounting treatments and holding companies

• Free cash flow vs. earnings: prefer cash‑based measures; adjust for CAPEX, working capital, and non‑cash items (Speaker 2).
• Consolidation vs. equity method: GAAP/IFRS choices affect optics; reconcile to look‑through economics (Speaker 2).
• Holding companies and SOTP:
  • Build NAV using listed subsidiaries’ market values and private stakes’ fair estimates; apply holdco discounts as appropriate (Speaker 2).
  • Beware over/under‑valuation of parts vs. whole; test whether “sum of the parts > whole” truly unlocks (Speakers 8, 2, 4).
  • Serial acquirers: evaluate discipline of acquisitions, ROIC post‑deal, goodwill and impairment risks, and whether deals are value‑accretive or empire‑building (Speakers 2, 4).

5) Style cycles, factor spreads, and diversification

• Style rotation: growth vs. value leadership swings; momentum/value/quality premia are time‑varying (Speakers 2, 5, 6).
• Suggested portfolio construction:
  • Core quality/value anchors; momentum overlay for timing; selective diversification across uncorrelated factors.
  • Accept that any single factor can suffer multi‑year droughts; size exposures to survive (Speaker 2).

6) IPOs and market cycles

• IPOs often priced aggressively in “hot” markets; issuers exhaust private options first, then go public at premium valuations; a “honeymoon” period is common but fades (Speaker 2; acknowledged by Speaker 6).
• Framework: treat IPOs with extra skepticism; demand margin of safety or wait through lock‑up expiries/liquidity normalization.

7) Process, team setup, and research discipline

• Build a small, focused team; define coverage aligned with circle of competence (Speaker 1, 2).
• Codify the research process: screen → accounting normalization → unit economics and cash flows → moat/management/capital allocation → valuation (base/ bear/ bull) → risk rules (Speaker 2).
• Use a model library and reading program; iterate via post‑mortems; avoid “analysis paralysis” by setting decision checklists and time boxes (Speaker 2).

8) Psychology and edge

• “What is your edge?” asked explicitly (Speaker 2): informational, analytical, or behavioral. The group stressed behavioral edges (patience, discipline under drawdown, temperament fit to strategy).
• Biases discussed: overconfidence, over‑trading, narrative chasing; counter with rules and diversification (Speaker 2).

9) Case mentions and sector notes

• Tech/mega‑caps (Google, Microsoft, Amazon, Tesla) cited as examples where earnings power and intangibles outclass simple book value (Speaker 2).
• Consumer staples: used as “circle of competence” starting points (Speaker 2).
• Airlines flagged as structurally difficult (cyclical, capital intensive, low ROIC) (Speaker 2).

Tactics to manage drawdowns

• 200‑day moving average filter to avoid deep bear phases; accept whipsaws as a trade‑off (Speaker 2).
• Pre‑committed stop‑losses at tolerable thresholds; use position sizing to cap portfolio‑level damage (Speaker 2).
• Diversification across styles/sectors; avoid concentration in single risk factor (Speaker 2).

Reading list and study plan (as referenced)

• The Intelligent Investor (Benjamin Graham)
• Security Analysis (Graham & Dodd)
• The Warren Buffett Way (Robert Hagstrom)
• The Little Book That Builds Wealth (quality/moats)
• Bruce Greenwald’s work (e.g., Competition Demystified) and HBR materials on competitive advantage
• Classic Buffett/Munger letters and discussions on cash flows, owner earnings, and circle of competence

Practical takeaways

• Build a hybrid process that blends fundamental quality/value with a momentum/trend overlay.
• Anchor on free cash flow and earning power; adjust accounting to economic reality; be cautious with book metrics for intangibles‑heavy firms.
• Use explicit drawdown controls (200‑DMA, stop‑loss, sizing) and diversify across factors to survive style droughts.
• For holding companies, value look‑through economics and apply holdco discounts thoughtfully; scrutinize serial acquirers’ ROIC and impairment history.
• Treat IPOs skeptically in hot cycles; prefer waiting for fundamentals and liquidity to normalize.
• Continually sharpen circle of competence; align strategy with temperament to sustain discipline.

Open questions raised

• Best practice for R&D capitalization in pharma/tech: when to capitalize vs. expense; how to probability‑weight pipelines.
• Calibration of trend filters (e.g., 150‑DMA vs 200‑DMA) and their impact on whipsaw vs. drawdown.
• How large should style diversification be before it dilutes edge? Thresholds for factor concentration.
• Quantifying “quality” consistently across sectors with different capital cycles.

Action items and next steps (implied)

• Formalize a written investment process with checklists and risk rules.
• Build a model library: cash flow normalizations, DCF templates, SOTP for holdcos, and an acquisition scorecard for serial acquirers.
• Implement and backtest a momentum/trend overlay across the core universe; validate out‑of‑sample.
• Develop a sector‑specific playbook for intangibles and R&D handling (especially pharma/tech).
• Establish a reading curriculum from the referenced texts; schedule periodic post‑mortems to reduce behavioral errors.