Offshore

Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: This software sell-off is something to behold

A broad drawdown with massive multiple compression across an entire sector is rare — the way it happened, the speed + scale + magnitude of it has been incredible

If nothing else, it makes you a sharper investor. You walk away with a permanent reminder that multiple compression is always a risk — even for great businesses

That’s why valuation discipline matters:

You either need a margin of safety, or you need to be continuously monitoring whether growth is justifying the price you’re paying

A lot of investors rationalize:

“You just have to pay up for quality”

Sure — but at what cost? Quality doesn’t mean an infinite multiple

As Warren Buffett famously asserted:

“For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments”

On the other hand, look back at some of the world’s best businesses and where they traded, relative to growth, over the last year:

$GOOG 18x growing >15%, $NVDA 25x growing >20%, $ASML 26x growing >17%, $MSFT 26x growing >15%, $MA 26x growing >15%, $FICO 36x growing >20%, $TDG 33x growing ~17%

Why pay 70x for a SaaS company growing 20%? It looks obvious now, but a year ago it took contrarian thinking coupled with conviction to see it that way

That’s why Benjamin Graham’s simple “2G rule of thumb” is so helpful

It keeps you grounded during euphoric periods when you’re tempted to make “exceptions” — the exact moments when investors end up overexposed to valuation risk



Software! https://t.co/zLJmvedrEo

- Connor Bates
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