Stocks Have Become Pokémon Cards

During their latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and special guest Zach Abraham discussed Stocks Have Become Pokémon Cards. Here’s an excerpt from the episode:

Zach: I don’t want to be hyperbolic at all, but I think in a lot of ways, personally, I started running a portfolio in 2007. I’ve never seen a market that seems more detached from fundamentals than current. When I say that, I don’t mean that everything’s insanely priced. I just don’t see any rhyme or reason to how things are priced. It just seems like things are just floating. Like we keep joking around at the office. It’s like stocks have become Pokémon cards, where somebody thinks it’s worth this much this day, discount rates don’t matter anymore.

You and I were talking about off air. If you would have told me that the Fed funds rate was going to go to five and a half and earnings were going to be down, margins were going to be down pretty much throughout the entire S&P, I think on an inflation adjusted basis, revenues are down year over year. And in that backdrop, you’re looking at a market that’s up 10% plus. Yeah, [chuckles] falling profits and higher rates don’t typically incite me to want to jump in there and buy.

So, I think that one of the things I was looking back at a letter we wrote to our clients in 2021, at the end of 2021, and we said that, “Look, I think we’re at the peak of this cycle, but it’s going to be a knife fight, just because it’s been the longest, biggest bull market of all time and you’ve had 0% rates pretty much the entire time.” And we said, “Look, we think it’s going to take a lot longer to get to “normal.” We’d expect to see massive bear market rallies.” So, so far, that’s the way it’s playing out. And in that light, I guess, this year shouldn’t surprise me. Everything has been bigger and longer and crazier, and this appears to be too, but I don’t think it’s going to change the ultimate resting place. I think we’re going lower. I don’t think we’re on the edge of a morass. I don’t think we’re looking at some big 2008, 2009 black hole.

You know what’s funny, guys? And I’d love to hear your thoughts. I feel like I’ve already been rambling, but I feel like you’re really setting up for a mini-1970s type period where you’re just got to grind sideways for a long time while you digest the current valuations, which seem very stretched. I think peak margins are probably in the rear-view mirror. I’m not a permabear. I don’t think we’re about ready to fall off the face of the Earth. I also don’t think that this is the environment of a new bull market breakout either. I think both bulls and bears are going to get smacked around, and I think sideways chop for a while. It seems like the most logical position at this point, but we’ll see.

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