Joys Of Compounding: The Passionate Pursuit of Lifelong Learning

by Gautam Baid

According to Hamtil, The lesson from this exercise, I believe, is that investors should always be conscious of starting valuation when placing their bets. With few exceptions, eventually valuations that are simply too high will drift back down to more reasonable levels, often at the expense of poor intermediate-term performance. This appears to be true no matter how revolutionary the new business appears to be, and no matter how much potential you believe it has [emphasis added]. Of course, if your conviction is such that you plan on holding your shares for multiple decades, valuation may indeed matter less to long-term returns, but that is assuming you follow through on your commitment. Over several years of subpar performance, that is much easier said than done.2