Weighing Beats Voting

Correlations are high.  Risk-on, risk-off drives the market as market players trade ETPs and baskets rather than individual stocks.  Market players worry about policy, and whether it will be inflationary (bullish) or deflationary (bearish).

What an ugly time to be a value investor, and a long-term industry rotator.  The time cycle has shrunk to tiny proportions relative to the likely life of the assets being traded.

But I take heart that it will not always be this way.  As Ben Graham said, “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

Eventually, for industries where the companies are worth a lot more than the current price, there will be buyouts.  For industries where companies are worth less, there may be IPOs.

I believe that correlations will reduce from here.  It may not be dramatic, but they will fall.  Whenever there is a dominant paradigm for asset pricing, there are assets that get mispriced.

My expectation is that there are many companies earning money while trading at a discount to adjusted book that will be bought out by others.