Over the past decade, companies with high growth and even higher valuations have been the market darlings. So much so that many investors, even at the highest level of institutional investing, have eschewed valuation by arguing that company quality drives shareholder returns over the long run. It’s not wrong, but it requires an investor to be right over a very long term horizon (e.g., not just right over the next five years, but the next fifteen years).
While in the moment, it may seem that these insights have a lot of merit, as backward looking performance supported it. The pariah of this growth cycle is Cathie Wood and the ARKK ETF, which is down over 60% from its high. But that’s for mostly retail investors. Yesterday it was reported an investor who has been making the rounds on podcasts over the past year, and heavily praised for their growth investing strategy is liquidating:
Looking forward, I rarely find macro commentators interesting, as they typically make definitive prognostications that most often aren’t correct. But I listened to a podcast with one who surprisingly doesn’t make strong predictions, just offers a set of potential outcomes. To me that’s helpful just to understand what is possible.
In that he speaks of the uncertainty as it pertains to the global energy linkages, both the payment flows and physical linkages. Specifically he acknowledges that there are Lehman-ish elements to the current situation, in that we don’t really know what breaks, if anything, when energy (and other critical commodities) flows out of Russia are fully shut down. While the odds of something catacylsmic I believe are low, it’s good to understand that there’s non-zero risk of something we don’t understand within the commodities realm that starts to break things. After all, I tend pray at the altar that “we won’t know what causes the next big one a priori.”