In the latest commentary by Albert Bridge Capital, Drew Dickson explains why the market will always be a weighing machine. Here’s an excerpt from the commentary:
Dear Stock Picker,
I know, these are weird and trying times. It all makes you wonder what the point of stock-picking is. What is the purpose of kicking the tires, looking under the hood, and doing our jobs?
Michael Green at Logica, who is as smart as you like, will tell you the entire game now is all about passive flows, and that fundamental analysis is borderline useless. Cliff Asness at AQR, possibly an even smarter guy, will tell you that all this stuff we used to call alpha really was just factor exposure (e.g. quality, value) and there are cheaper ways to get it. Or perhaps fundamentals should matter, but Chamath Palihapitiya or Elon Musk will go out and buy OTM YOLO calls on some dog with fleas and then tweet “Gamestonks” to their hordes of acolytes – all but destroying normal price discovery.
Despite the protestations otherwise, despite the popular view that the market is now purely narrative-driven, despite the recent emergence of wholly unfundamental stories like the one we all just experienced with Gamestop (and probably are still experiencing with Tesla), and despite the power of Ben Graham’s voting machine; in my very strong view, the stock market will always eventually be a weighing machine.
This surely will sound quaint and stale to a few readers, but – and I’m sorry – the future value of a thing is ultimately based on the dividends the thing will eventually pay you, or someone to whom you are prepared to sell your shares. Whether the proxies for those dividends are cash flows, earnings, margins, sales, or the dividends themselves, alpha happens when expectations of those future dividends change.
That’s it. That’s the stock-picking game. Stocks are not pieces of art. They are not fiat money. Cults of personality do not last forever in the stock market. Narratives break. Eventually, everyone figured out that Galileo was right. Eventually, everyone will figure out that Cathie Wood isn’t. And it won’t take as long either.
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