Hot Take: “Value” in the way most people use the term is never coming back. Most of the factors people look to for a potential “return to value” (rates, inflation, regulation, etc) will actually amplify the competitive disadvantage most “value” companies have against competitors.

Gonna tip my hand on some of the stuff I’m writing right now that’s unpublished, but I think people sitting at spreadsheets do not understand the changes that have happened in competitive strategies and the tools available to businesses.

The meta game has changed, like poker did in the early 2000s with the advent of online. Information is up, skill is up, and the evolving strategies are not intuitive. Value as a community is increasingly a justification for losing ideas and nostalgia.

Ultimately most value names are broadly short progress, short time, short technology, and short competitive dynamics. The problem is most of the great reckoning events people think might lead to a value rotation actually must lead to a collapse of all assets (and maybe society).

Key topics:
- speed of market share shifts
- strength of moats built off of that
- ability to make legacy moats and cultures into disadvantageous anchors for firms
- high level pressure on most small and mid sized businesses increasing platform/marketplace market power

- the change in expected value for whole sectors triggered by the entrance of players who are looking to win the market vs be a player in it
- size of capital those players can get with a viable premise / minor edge vs balance sheet of legacy players

- cultural, social, and stakeholder frictions for firms to respond to more aggressive players at the table
- non “thrive” mentality companies unable / unwilling to recruit or give agency to dynamic younger talent
- reality that if demand is controlled supply is a matter of credit

- more and more businesses are competing based on neurological factors that are insanely hard to unseat. Most of the products Americans use now can be classified as drugs / addictions
- Most consumer purchasing power is only 30% of people, they buy in packs, not much else left

- IMO a generation raised on video games where patches and updates always change the rules + the decline of shame for failing as a founder has led to radically more aggressive, hacker-thinking business people. They are finding more clever vectors to take control in value chains

- Capital is cheap but also the results in a non trivial sample of founders if funded are insane. Companies are really testing the up until now theoretical question of “could it be built with unlimited money.” Turns out, the answer is almost always yes + cheaper than you think

- even the players who have bad models where value guys decry “this will end poorly” have enough firepower to choke out most smaller incumbents now over time if clever. So you have to adjust comp E(v) for both scenarios where entrant wins + where margins destroyed for years

tl;dr: fundamental processes need to look like this:

1) competitive dynamics in a market
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...
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85) is valuation reasonable

Businesses in the real economy are mostly cavalry units showing up to WW1. Its going to get (and has gotten) super real for a lot of people, fast

Trump won’t save them
Biden won’t save them
Powell won’t save them
Rates won’t save them
SAAS correcting won’t save them
Inflation won’t save them
Citing Japan or the EU won’t save them

The next 5 years of markets is about 1 thing:

Winners and Losers

Anti-Quibble Disclaimer: Obviously yes there’s a lot of BS and fraud out there but if you cite that as a rebuttal you’re defending your ego vs considering the idea.

More directly, there’s more than enough BS+expensive stuff that market valuations cannot be an excuse for L/S