Stock Market Investors

Headlines are popping up left and right about how high the 10-year Treasury yield has risen. While investors make decisions about what is the “right” longer-term cost of government debt, many journalists focus on single-factor ways of viewing it. They will support the ideas that it is tariffs, or government spending and so on and so forth. We will seek to provide a multi-factor view of this and discuss what investors are missing in plain sight. […]

For a quarter of a century, the hyperscalers have been some of the most profitable and technologically innovative businesses ever created. The reason was clear: their marginal cost per additional customer was almost zero. Costs were fixed and scale was effectively unlimited, which meant margins widened as volume grew. In the years before the current AI build, Alphabet earned 39 cents and Microsoft earned 61 cents on every dollar of capital . Paying 24 to 33 times profit to own them was aggressive but defensible. […]

As portfolio managers, we must practice what Charlie Munger called “ignorance avoidance!” Therefore, regardless of when the mania for all things AI dies, we believe there will be a bloodbath in the S&P 500 Index, and that would be “no country for old men,” who have built their financial futures around ongoing indexing success. […]