One thing that worries me about this sort of alpha is that the "one in ten years" opportunities are also going to come with a lot of political backlash, in particular, charges of "price gouging" (or "war profiteering", if it's due to war). I think there's a real risk you wait for ten years only to see the rug pulled once opportunity finally does come.
And I'm not even sure that these charges are wrong. The "cure for high prices is high prices" only seems true if we can *quickly* produce more supply, which is often not the case in an emergency. I think you could make an argument that a more efficient market would have higher prices during the regular nine years so that these sorts of price spikes don't happen or aren't as large.
I really like this analysis and look forward to the next two parts. I don’t necessarily think that the markets have become less efficient, in some broad poorly-defined way, but I do think that the markets have changed in the way that there are inefficiencies that can be exploited. I think that your shipping example is a good one. My feeling is that in the short term, like under 3 months to a year, the market has become more efficient; but the process of some money managers exploiting short-term opportunities with large sums seems to have opened up some opportunities in the one to ten year time duration.
You make a great point, and it's embedded in some strategies, like net-nets, or buying puts, that the portfolio might go nowhere for years and then boom. Same can be said of emerging vs developed cycles, and commodities/cyclicals as you mentioned.
I don't think most investors have the courage to sustain three years of flat returns during a bull market though, even less so their limited partners if they have. The answer is probably to be more tactical as you mentioned, but timing is not easy either.
It’s my understanding that insurance for shipping vessels has increased markedly and this has also led to higher insurance costs for everyone, including other business coverages and personal home, auto, etc. policies.
Also, I am wary of listening to anyone. A lot of managers or pundits are just trying to make excuses for nosebleed valuations. I’d rather miss out than some unknown event that could spark more than just a correction. And there is nothing to suggest that buying something cheap can’t get cheaper.
Also a lot of the names I see here on Substack, mostly via micro-caps have been consistently cheap in bull and bear markets. However, I still keep an eye one them because you know they can always have one good puff left in them
It's possible to construct a technological-discontinuity-meets-demographics explanation:
1. The Internet bubble formed around a technological discontinuity meeting a tsunami of investment dollars from Boomers reaching their peak savings/investing years
2. The AI bubble likewise represents the marriage of stepwise technological innovation and Millennial YOLO dollars (reflecting an earlier "maturity" of stock market entrants).
The latter, of course, may be amplified by social media, but the advantage of this thesis is that it offers a potential explanation for both the tech and AI bubbles - and prior (1929 et al) financial bubbles. The larger point is that financial bubbles are a feature of the human lifespan and (lack of) institutional memory, our inability to learn from prior generational blunders. Which isn't unique to the world of finance.
One thing that worries me about this sort of alpha is that the "one in ten years" opportunities are also going to come with a lot of political backlash, in particular, charges of "price gouging" (or "war profiteering", if it's due to war). I think there's a real risk you wait for ten years only to see the rug pulled once opportunity finally does come.
And I'm not even sure that these charges are wrong. The "cure for high prices is high prices" only seems true if we can *quickly* produce more supply, which is often not the case in an emergency. I think you could make an argument that a more efficient market would have higher prices during the regular nine years so that these sorts of price spikes don't happen or aren't as large.
I really like this analysis and look forward to the next two parts. I don’t necessarily think that the markets have become less efficient, in some broad poorly-defined way, but I do think that the markets have changed in the way that there are inefficiencies that can be exploited. I think that your shipping example is a good one. My feeling is that in the short term, like under 3 months to a year, the market has become more efficient; but the process of some money managers exploiting short-term opportunities with large sums seems to have opened up some opportunities in the one to ten year time duration.
You make a great point, and it's embedded in some strategies, like net-nets, or buying puts, that the portfolio might go nowhere for years and then boom. Same can be said of emerging vs developed cycles, and commodities/cyclicals as you mentioned.
I don't think most investors have the courage to sustain three years of flat returns during a bull market though, even less so their limited partners if they have. The answer is probably to be more tactical as you mentioned, but timing is not easy either.
It’s my understanding that insurance for shipping vessels has increased markedly and this has also led to higher insurance costs for everyone, including other business coverages and personal home, auto, etc. policies.
Also, I am wary of listening to anyone. A lot of managers or pundits are just trying to make excuses for nosebleed valuations. I’d rather miss out than some unknown event that could spark more than just a correction. And there is nothing to suggest that buying something cheap can’t get cheaper.
Also a lot of the names I see here on Substack, mostly via micro-caps have been consistently cheap in bull and bear markets. However, I still keep an eye one them because you know they can always have one good puff left in them
It's possible to construct a technological-discontinuity-meets-demographics explanation:
1. The Internet bubble formed around a technological discontinuity meeting a tsunami of investment dollars from Boomers reaching their peak savings/investing years
2. The AI bubble likewise represents the marriage of stepwise technological innovation and Millennial YOLO dollars (reflecting an earlier "maturity" of stock market entrants).
The latter, of course, may be amplified by social media, but the advantage of this thesis is that it offers a potential explanation for both the tech and AI bubbles - and prior (1929 et al) financial bubbles. The larger point is that financial bubbles are a feature of the human lifespan and (lack of) institutional memory, our inability to learn from prior generational blunders. Which isn't unique to the world of finance.