Our goal for Investment Perspectives is for it to be one of the ways that we communicate our thinking (past and present) to clients and the general public. We believe that investing is an iterative process and we know of no better way to test our own thinking than to share it with others. We encourage readers to send us their thoughts or questions.
Latest Investment Perspectives
“When there is a frenzy of activity in one area of the market, there is very often an anti-bubble of discarded companies. In the dot-com era, these were companies with steady cash flow.”
– Nick Sleep, co-founder of the Nomad Investment Partnership
The Machinery of Speculation, Two Markets in One, and the Difference Between Owning and Betting
The stock market is a living exchange. Built more than a century ago as a way for companies to list ownership in themselves with the public, it has grown and morphed with each new technology. One thing has held true throughout: whether the participants are humans or computers, trading is driven by the same two emotions that drive most decision making, fear and greed. Markets are always looking forward, because the value of any stock is its future earnings potential. But the future is uncertain, and that uncertainty is where both opportunity and danger live. This quarter, we think the market has split into two markets, one crowded and demanding, one largely ignored, and the distinction matters for how we invest.
Against this backdrop, this quarter’s Investment Perspectives explores three themes. First, the machinery amplifying the enthusiasm: circular financing among AI companies, a new generation of investors trading on smartphones, the growth of leveraged products, and momentum-driven algorithms that buy simply because prices are rising. Second, how concentrated the market has quietly become, what that means for anyone who owns an index fund, and why the neglected majority of the market interests us more than the crowded top. And third, the oldest distinction in our discipline, the difference between speculating and investing, and what we are doing in portfolios as a result. Though distinct in subject, these themes share a common thread: frenzies concentrate attention in one corner of the market, and as Nick Sleep observed, that is precisely when durable businesses elsewhere get discarded at attractive prices. Our job is to be ready for that.