[…] Quality is an overused word to describe the winners (surviving planes) of today’s stock market. People will explain the profitability or return-on-equity of a company like Microsoft. In my mind, it’s like explaining the fuselage’s ability take bullets when all that should be focused on is whether the engine is well armored. The only way to measure that from a historical perspective is to ask the question, has success come to investors paying 40x earnings for a stock from the 10 largest market cap list? Chance of fatality is low, but it’s usually just another chance to languish. […]

[…] The COVID-19 virus and nationwide quarantines have raised the day-to-day importance of many popular companies. Stock market investors have poured billions into these favorites under the theory that “there is no alternative” to owning them. In social media, Facebook is a TINA stock, Google is a search TINA and Amazon is a TINA in cloud computing and the relatively unprofitable e-commerce logistics platform. Tesla is TINA in electric cars and Apple is TINA for their affluent worldwide network of addicted customers. Investors are paying very high prices in some parabolic upward price moves for these wide moat companies. […]

While listening to Rob Arnott on a recent Morningstar podcast, I became enamored with something that Arnott was emphatic about. He pointed out that the structural advantage of being a contrarian isn’t being smarter. Every winning purchase in the stock market comes as an opportunity cost to the seller. In aggregate, the non-passive portion of the market will look like the respective index. Arnott asked the question, “Who are you trading against?” In other words, who is on the other side of your transactions in the stock market?