Full Transcript: Weekly Wrap on SpaceX, CapEx, and Market Valuations

Aswath Damodaran, Andy Constan, and Tobias Carlisle on a Shifting, Expensive Market

Jack: Welcome to the Excess Returns Weekly Wrap, where we tell you everything you need to know about our interviews from this week in 30 minutes or less. As always, I’m joined by my good friend Matt Zeigler. Matt, how’s it going?

Matt: Yeah, I’m ready to learn everything that I need to know about these episodes. This has been a crazy week.

Jack: Well, you’re gonna have to tell people what they need to know as well because we’re gonna break down the lessons. We had Aswath Damodaran this week, we had Andy Constan, we had Tobias Carlisle. We’ve got what we thought were the most interesting clips, and then we’re gonna tell you what we think you can learn from them.

Matt: There’s definitely a ton to learn. And I mean, anytime you get Aswath, Andy, Toby, all in one place, this would be a pretty good party. I think this would be a good party. These guys— can you imagine the conversation? We’d get the macro, we get the deep valuation dives. This would be pretty intense. Couple—

Jack: Couple beers in there maybe.

Matt: Or maybe they might be mixed drink guys, I’m not sure. What do you think Aswath’s drinking?

Jack: I don’t know. I don’t think he’s a drinker.

Matt: I can see him—

Jack: Sipping scotch or something like that.

Matt: There you go. Maybe a fine single malt or something like that to go with that.

Jack: Yeah, yeah. That would fit very well.

Matt: Great, great pink oxford in this one, let’s be honest. Like, still the best dressed man—

Jack: In the room. Hopefully we’re not gonna get in the backdrops again.

Matt: I’m gonna try to resist. There’s not enough here that I haven’t delved into before. I’ll compliment Aswath’s shirt, back away.

Jack: Well, let’s get into it. And Aswath, I recommend that everybody watch the whole episode ‘cause he did a great job. We talked about SpaceX and his valuation of SpaceX in detail, but what struck me about it was this idea of stories versus numbers, and he does a better job than anybody of understanding that you need to understand both of those. So here’s Aswath talking about that.

Aswath: When I teach my valuation classes, one of the first questions I ask my students is, “What are you more comfortable with, working with numbers or telling stories?” And because I have MBAs who come from very different backgrounds, of course, there are quant-oriented people who say, “I like working with numbers,” and storytelling people who essentially...

And in the investing world, this plays out in the form of, if you go to bankers, especially old-time bankers or value investors, they’re very focused on EBITDA and revenues and multiples and trying to make sense of that. And if you go to VCs and founders, they’re big storytellers. They say... My problem with both sides, if you stay in your camp, is you’re missing big parts of what you do.

The number crunchers are so focused on what’s there now that they forget that this is not a company. The analogy I would offer is this is like having a kindergartner’s report card and extrapolating from that what they will be doing in college, which is essentially what you’re getting with the SpaceX financial statement.

There’s not much there, and there’s not much there because financial statements reflect your history, and you don’t have much in your history. My problem with the storytelling that I hear is it stops with the total addressable market. That seems... I mean, I’ve watched CNBC as to why SpaceX should be worth two trillion.

And your story does it. It’s a big market. And then I wait for the rest of the story, and it doesn’t come. And here’s my problem. This is a business. I don’t get value from having a big market. I’ve got to take that big market. I’ve got to monetize it as revenues for me. So I need to get your story as to why I am going to be a beneficiary of that big market, which requires that you talk about the relative advantages of Grok versus OpenAI versus Claude versus Gemini.

You need to get at least a working acquaintance of those. And then you got to talk about unit economics, which is how much are you going to charge for your product. There are a lot of... these stories are incomplete. Incomplete stories are basically a recipe for essentially doing what everybody else is doing.

In other words, these are not stories that tell you whether you should be buying the stock. They’re stories used because you’ve already decided you want to own SpaceX, and you’re looking for a justification for why that was okay. We all do it. Numbers people do it. Story people do it. We make decisions first, and then we look for rationalizations later.

It’s human nature. What I’m trying to do is slow the process down because, like everybody else, I have instincts that lead me to want to do something. I want to slow the process down and give my rational side a chance to at least mount an argument.

Jack: It’s interesting, Matt, because everybody... Like, there’s kind of two camps on SpaceX right now. There’s the camp that I sort of reside in, which is, like, 150 times sales or whatever for a $2 trillion company. That doesn’t seem like that’s likely to work out well. And then you’ve got kind of the tech people that are actually looking at all the different things they do and looking at huge potential in the future.

And you have to sort of bring those two things together to truly understand SpaceX, and he does a very good job of talking about why both of those are important.

Matt: Yeah. I’ve said it a million times, I’ll say it a million times more. You can’t talk about markets without talking about marketing. And as he breaks down in this, and certainly the way he’s taught, I’ve learned more about IPOs and valuing them from this man than anyone else because he’s one of the few people who will tell you even if you think the story is unreasonable, here are the numbers that would either make it reasonable or how you might work through it.

And the storytelling that’s going on with this IPO is second to none. We’ve never seen anything like it. And I don’t wanna jump the gun because I know Andy’s about to say something in this next clip that we’re gonna play that I feel like is super relevant to understanding why it feels this way, both as a value investor who, we look at this and say, “150 times sales. Like, good luck, guys. Best of luck to you acquiring these shares,” but it still might work.

Jack: And as much as I’m a value guy, I mean, you do have to say there are some very interesting stories here. Starlink is a very interesting thing in terms of, like, the ability to take over internet, you know, providing... being an internet provider across the world. That eventually leads to probably them providing cell service to everybody themselves without needing a cell provider. Like, you’ve got AI in data centers, you’ve got data centers in space, you’ve got Mars. There are some interesting stories.

As much as people like me may say, “Yeah, you know, that might not work out,” like, there’s some very interesting stories and opportunity within this.

Matt: I had my first Starlink experience, not in some weird... I wasn’t in the middle of a desert or something, but I had my first genuine Starlink experience where I went, “Holy crap, this is really impressive.” Have you experienced this technology firsthand?

Jack: I haven’t, but everybody who’s used it says it’s just amazing.

Matt: We needed to get Wi-Fi into a location where we couldn’t, and one of the tech people that we do work with has the Starlink whatever in this tech van that they use for all this on-site work.

And they were like, “Well, we’ll just bring the van to outside of where we need to get the Wi-Fi working, point it at the place,” and we all had ripping fast Wi-Fi for an entire day. And that was one of those things where a van on a street with a pointed, whatever you call the thing that they’re pointing at you, solved a problem in a way that was, again, ripping fast Wi-Fi. I was super impressed with how seamless it worked.

Jack: So our next clip, we’re still on SpaceX, but we’re coming at it from a completely different direction. Andy Constan’s worked on Wall Street for a really long time. He’s worked on a bunch of IPOs. He’s seen what goes on behind the scenes. So he wrote a really good piece about IPOs in general and how they work recently, but here’s him talking about SpaceX.

Andy: I think the first thing it means is that the shares distributed to the public are kept such that the deal trades above, and there’s follow-on interest such that the deal trades above its issuance price. Google did a secondary offering, which is quite a bit different in that you can sell the stock short ahead of a deal, you can buy.

There’s a slight different dynamic than an IPO and a secondary. They issued stock at 155, which was down, this was the week before, that was down five, six percent from where it had been. So pretty significant market impact. But the deal did trade up, and then it traded through the deal. That’s not a great outcome.

You want the deal to be well-placed with investors and there to be enough aftermarket demand such that the deal trades up. In this case, the deal was priced at $135. It opened at 150. It traded into the 170s. I think it’s trading there now. That’s a good deal. Certainly the investors are happy.

Some investors didn’t get as much as they wanted, but maybe they were buying at 150 and they increased. Other investors got what they wanted and flipped it, which is they bought at 135 and immediately sold at 150 for a riskless profit. That’s all the nature of the IPO market is what happens in that thing.

But at the high level, the deal went well.

Jack: One of the most interesting things about your piece to me is, I had this feeling that — and it’s probably from some tech companies talking about this over the years — the issuer kinda gets mad if it goes up a lot because they feel like they left money on the table. But you were making the opposite point. You were making the point that even though they’ve left money on the table, the issuer wants the thing to go up, right, from a perception standpoint. So if you think about the outstanding, they sold $85 billion of stock, call it 80 billion just to make the numbers round, and they had $2 trillion of market cap.

Andy: That means they issued 4% of the total company. I gotta tell you, I don’t care if I’m a seller of 90, 100% of the company, the first 4%, if it is a bad trade, but it also makes investors think that this is a high quality company that is hot, I’m happy to sell it a little, give a little bit of money away.

Now, as I mentioned, there sometimes are third party selling shareholders, and those guys don’t want it to trade up because it’s literally their money and it may be a significant portion of their money that is getting sold. So their interests tend not to be aligned with the company. Now, the company doesn’t want to get ripped off.

There have been times when deals have been priced, using these numbers, at 135 and boom, it opens up 100% higher and then stays up. That’s a bad deal and the issuer is gonna be pissed and you are not going to get the next deal. So at some level, your interests are aligned with them. You don’t wanna make a mistake either and allow it to trade up, or price it at such a level that it doesn’t trade up.

Jack: So the big thing for me, Matt, and this is kind of... you’ve heard recently, like, a lot of the tech companies complaining. You know, “This is a rigged process,” and, like, “Because the stock goes up so much, we’ve left all this money on the table.” And he takes the other side of that, which I thought was very interesting. He takes the perspective that, like, the issuers actually want the stock to go up.

They’re willing to leave the money on the table because they’re selling a small portion of their company, and the PR and all the other stuff kind of outweighs that at the beginning, which I thought was really interesting.

Matt: I think it’s really important to remember that part of it, and this whole issuing 4% and the float basically being 4% for right now is super, super important.

‘Cause we talk about the valuation. Yes, we’re talking about the valuation of the whole company, but we’re talking about that as being proven by the 4% of shares that are trading. It’s like looking at your block and thinking the one house that sold drives the value of the whole block. It might... You might be able to infer some value of the entire block and how it would go, but you’re not gonna put the whole block on sale all at once.

So you’re gonna derive the value from the little piece of the float, the change that’s happening at the margin, what’s resulting there. Smart companies approach the process this way. They don’t wanna depreciate the value of the entire block. They don’t wanna depreciate the value of the entire company. You have to leave some on the table. This is part of going public, is to recognize you want this whole thing to increase over time. I think Andy actually explained this brilliantly.

Jack: So this next clip we’re talking to our good friend Tobias Carlisle, and he’s talking about this idea that the market’s very expensive, which all of us will acknowledge, but the harder part is trying to figure out what to do with that. So here’s Toby talking about that.

Toby: It’s tempting to look at those market valuations and get scared out of the market. And that’s a mistake, I think. The market overvaluation is really well documented. You know, the Advisor Perspectives website has... They track, like, six or seven different market level valuation metrics.

There’s Shiller P/E, Tobin’s Q, the trend of the market against its long-term trend. There are a few other sort of single-year P/E metrics and things like that. Every single one of them is... And collectively they’re at their most overvalued in the dataset. The Shiller P/E is one that sort of slightly understates the level of overvaluation.

The others sort of seem to suggest that we’re in this uniquely expensive time in the market. Which, if you’re a bull on AI and the singularity, AI being so completely transformative that it completely changes the way we do business such that these companies are gonna earn super normal returns on capital and they’ll never, ever be headed by any other business, then maybe these multiples are reasonable.

If you’re in the camp that we sort of have these long-term returns, we mean-revert back to long-term means, which honestly seems like a kind of quaint idea these days because it really hasn’t happened for an extended period of time. But that used to be the case, like in 100 plus years of data, we’ve always gone back to the average.

Then it looks expensive and you look at the forward returns. The corollary to overvaluation is just reduced forward returns, and they’re often accompanied by a lot of volatility, a lot of crashes and things like that. So on a comparable basis where something like the peak of the dot-com boom or the very last few months of the dot-com boom, if you like the Shiller P/E, because it’s not quite at the all-time high.

And there’s no reason why the all-time high is the ceiling. China got to 100 times, Japan got to 100 times. The US getting to 44 times, that’s not a magic number. It could easily go through that number. Having said all of that though, we had the same scenario in 2000. Very, very expensive market. Very bifurcated market where there were a very large number of high quality, undervalued stocks trading at reasonable multiples, maybe even discounts to reasonable multiples.

And that was what set up a very good return for the next 10, 15 years for small and micro-cap, and particularly small and micro-cap value and quality. I think we’re in a similar sort of scenario now. So you don’t want to look at those headline numbers and pull out of the market. I think you want to look at those headline numbers and then look for other places where there are reasonable prospects for good forward returns.

Matt: I can’t help but think with this one just how much it’s not smarter, but it is smarter. It’s savvier. How much savvier CEO... Every time I look at the Shiller CAPE chart, or I look at any of these things on overvaluation, I just think about CEO communication strategies and the marketing job that they’ve been able to do. And I feel like they’ve been learning all these lessons post-tech bubble about how to talk about richly valued shares.

Investors have normalized a bunch of these expectations, and that story aspect, back to Aswath, is so insanely just useful to remember.

Jack: And that’s why you can’t do anything with this because who knows how long that story can go on. I mean, valuations have been rising for a very, very long time, and people have been saying they can’t rise anymore for a very, very long time.

And Toby made this point in the clip. Toby is obviously a value investor who thinks the market’s very expensive, but he also admits there’s not much you can do with this.

Matt: Yeah. Value investor Jack, when you put the quant value hat on, do you just look at this? Is this in the too hard bucket? Is this a, “Well, I’ll just keep dabbling in what I actually know to be systematically cheap”?

Jack: Yeah, that’s what he has said in the clip, and that’s the answer. I was just prepping for an interview. We have Ben Inker from GMO coming next week, and they basically said the same thing as well, which is what you can do is you can control.

You can’t time the market. You can’t short the market. You probably don’t wanna exit the market. You can control what you invest in. And there are opportunities from an expected return standpoint that are better than the most expensive portions of the market, and that’s something that’s different than maybe some other bubble type periods in the past.

Value stocks are legitimately cheap, like on an absolute basis, to some degree right now. So there are opportunities. Now, some people may believe that’s never gonna reverse itself, and that’s a fair point. But I do think there’s opportunities if you’re a believer the market’s expensive. There’s opportunities to shift around to maybe areas where there are better expected returns.

Matt: It’s so interesting, and I wanna use this to segue into the next clip because it’s taking us from what we as investors who wanna own shares of these companies think is an attractive opportunity and then matching it with one of the greatest challenges to the CEOs again of where are they going to invest, what do they see as opportunities to drive these returns. Let’s play this Aswath clip next where he’s talking about CapEx, the capital expenditures, this next iteration we’re seeing in a lot of these large companies.

Aswath: I’m looking at CapEx. Where’s the CapEx going? How is it depreciated? Things I didn’t think about with these companies seven, eight, nine years ago, I’ve got to think about. It doesn’t mean that I can’t value them, but I’ve got to value them differently than I did because they’re changing their characteristics as companies.

And my worry is these are not companies used to these traditional CapEx-driven investments. They’re companies that got sloppy and lazy because they could grow with very little reinvestment, and they’re now doing something they’ve never done before, build huge factories, infrastructure investments which take 10 years to depreciate but could become obsolete in five.

It’s a very different game, and I’m not sure they really know what they’re getting themselves into, which means that I have more acceptance of what Apple is doing as opposed to the others, because Apple’s saying, “Look, we’ve never done this. If we decide to invest tens of billions of dollars in CapEx, we’re playing a game we never came to play, we’re not very good at. We want to stay in our lane.” So I think what Apple’s doing is a very different way of approaching the AI market. And while there are—

Jack: Yeah, it’s really more restrained in terms of—

Aswath: More restrained and frankly—

Jack: Paying for a lot of the CapEx.

Aswath: Absolutely. And I think a lot of analysts and investors are down on Apple for that reason, which is, “How come you’re not jumping in with both feet?”

And I think they have a basis for their strategy reflective of Tim Cook’s personality, which is, when he announced that he was gonna step down in September, I wrote a blog post, and the title kind of gives it away, “An Ode to Restraint,” ‘cause I think we undervalue restraint in business, and this might be one of those markets where restraint is a good feature.

Let other people make the big mistakes and then step in and say, “Hey, now that we have learned from Google’s big screw-up, which cost them $15 billion, I know what not to do.” And I think that the worry of being first there and being able to provide the AI product and services is driving these companies to overinvest and perhaps jump into spaces they’re not equipped to be very good players in.

Jack: Yeah, and this is interesting because the nature of these companies, whether you’re a believer in the Mag 7 or not, the nature of these companies is different now. And that’s what he’s getting at in the clip. I mean, these companies, they did spend a lot on intangible assets, which people maybe didn’t account for properly. But now they’re spending both more money on a raw basis but also on different things. Like, they are investing very, very heavily in this infrastructure.

And if you’re a believer that these investments are gonna pay off, then this is a very, very good thing. If you’re a believer that this is gonna play out like past tech bubbles, then you’re probably a believer this is a very, very bad thing. But the point is, irrespective of that, the nature of the companies has changed, and you have to acknowledge that when you analyze them and when you do detailed valuations like someone like Damodaran does.

Matt: His Tim Cook point is one of my favorite parts of this entire episode, this idea that we don’t undervalue restraint. And I think the critical point here is we don’t undervalue restraint because you can’t oversell restraint. Those don’t work together. You can’t oversell, like, “Well, guys, I’m a really responsible person. I’m gonna stay extra conservative, not gonna get wrapped up in this crazy stuff.” Look at—

Jack: My amazing restraint.

Matt: Yes. Because the inverse of that is the lack of restraint and the pure opportunistic our TAM is infinite space and time. That’s the opposite of this scenario. So we undervalue it because you can’t oversell it.

It’s such an interesting point as, again, this clip, this putting these together, just is making me think of the evolution of the CEO, how we market corporations and corporate earnings. This piece, this cycle we’ve been on since the tech bubble is pretty wild that now we’re right back into capital-intensive industries and investment for one company to rule them all.

Jack: And wouldn’t it be interesting if Apple comes out as the best of the Mag 7 out of this whole thing? If they show the restraint, if they eventually piggyback on what everybody else built, they build this personal assistant everybody’s talking about, and Apple ends up getting what they need without spending the money.

Matt: It’s gonna be fascinating. You think about an IBM or an Intel or some of the other last world survivors of the great technological boom that just turned into big, slow-moving dinosaurs, and you wonder which of the Mag 7 are gonna calcify into that next era of these dinosaurs. And it will be a function of the combination of some type of corporate restraint so they don’t get out too far over their skis, and it’ll be another combination of basically, nobody got fired for buying IBM, that kind of a deal. Some mix of that— we’re gonna look back on this in 20 years and see that have played out.

Jack: This next clip plays perfectly into the CapEx because this CapEx is leading to issuance now. And we’ve for a long time have had a buyback-driven stock market, and now we’ve got a stock market that’s reversed in the other direction. Here’s Andy Constan talking about that.

Andy: I’ve published on Twitter, or you guys can attach it to this episode, our analysis of the net supply of shares. And it’s a fairly radical shift. So I think it’s first important to recognize that when a company buys back their stock, what happens is they take cash out of their bank account and give it to a shareholder who gives them their shares, and now the shareholder has cash and could deposit it back in their bank account.

And so the banking system doesn’t really even change. But what happens is there’s less stock for the aggregate private investor to hold, and the corporation has less cash. Somebody else has the cash. What typically happens is the person who sells their Apple shares into the buyback buys SPY or buys any other stock, any other stock but Apple, ‘cause chances are if they’re selling their Apple, they’re not simultaneously buying it.

So they buy other stocks. And so the share buyback not only reduces the shares held in Apple, but at the macro level reduces the total number of shares available for investors to invest, while their cash grows because the company has moved cash. Issuance works the opposite way. More shares for the investors in the world to invest in, less cash that the investors hold to make investments.

And so that supply-demand matters a lot. Now, is it a fast-moving signal? No. No. It doesn’t... You know, you’re not gonna know when this thing makes a difference. For instance, the last time there was net supply of shares was late 2021. Now, the climate in late 2021 still was pretty good for another three to six months before 2022 happened, and arguably it may not have had anything to do with that supply and demand of stocks.

It had to do with lots of other things. But that is what’s happening.

Jack: This to me, Matt, is something I don’t understand completely, like the implications of it, but it’s one of the most interesting things in the market right now, is not only do we have all these IPOs, which is issuance, we have buybacks stopping. We’ve even got companies like Google issuing stock and going completely in the opposite direction. And what does it mean is, I think, one of the most interesting questions right now.

Matt: It’s a crazy interesting question because this is kind of the opposite of, remember ZIRP. No one forget ZIRP and what happened. We had zero interest rate policy. We had companies going out and issuing debt to buy back shares.

From a pure capital markets and banking function setting, like, put that frame set in your brain and think about how CEOs and CFOs were optimizing their companies in the ZIRP world to issue debt, buy back shares, boost cash flows and earnings. Or earnings per share at least. Now what we’re seeing is this scenario where, like, raising debt, you raise debt where you can if you need to, but this idea of issuing shares to raise cash to make for capital investment, this is kind of the 180 on where we are with the ZIRP buybacks.

And if there ever was an argument for regime change, it’d be something like this.

Jack: And the other important point here is this is a slow-moving signal. So this idea that Andy was contradicting these people who were saying, “The market’s gonna crash tomorrow because of all this issuance,” or something like that. That’s not the way it works. It takes time. It works its way through the system. And I think that’s such an important point because so many people are taking the opposite of that.

Matt: And it can play out. Not only can it, it will play out in a way that doesn’t make perfect sense now. It’ll make sense in hindsight. It will not make sense now. Because what might happen is we have issuance, we dilute earnings per share or revenue per share, whatever metric you wanna use. We dilute that for the larger companies. Maybe this is the time when those little companies start to catch up. Maybe this is the time where that earnings at large offsets some of this decline, and it doesn’t tank the markets.

This is a scenario that’s on the table here. We’re just in a very, very different capital formation environment than we were five, 10, 20 years ago.

Jack: Well, being the talented host that you are, you’ve led perfectly with little companies catching up into our next clip, which is Tobias Carlisle talking about this—

Matt: I’m throwing Toby a bone on this one.

Jack: You are.

Matt: Because he deserves it, because he deserves—

Jack: It. You’re a true bro, Matt. You just carry me through these things.

Matt: I’m trying to carry you through these things, and fingers crossed this is not a slight, but I have to give him a bone because I really hope that the USA beats Australia handily today. I know that fate will have been decided by the time this episode is out. But I’m hating Australia all day today, so I wanna give some love to Toby.

Jack: So here’s Toby talking about the value reversal.

Toby: That’s a little bit of a narrative violation. I don’t know if a lot of folks know that. Last 12 months, small caps have outperformed mags as well. I think we’re getting close to that point. A couple of things that I like to track, couple of very long-term ratios that I like to track. Equal weight S&P 500 versus the S&P 500 market capitalization weight, which is the standard one, one that most people track.

Equal weight is the unusual one. Equal weight has typically outperformed the more regular version of it, because small caps tend to outperform large caps. And for the data that we have, it goes back, I think you can get back to 1990. I think that might be the launch of the equal weight ETF. The equal weight has outperformed the market cap weight version of that, the entire way through, but it has on notable occasions, that relationship has reversed where the market cap one outperforms the equal weight one.

And so the late 1990s dot-com bubble, dot-com boom, 2020, and then it gave back a lot of ground until late 2024. Thanksgiving 2024, it kind of bottomed and then it’s run back up again now. And it’s now sold off a little bit since sort of late 2025. What that relationship tells me is when the market is in one of these sort of large cap growth booms, market capitalization weight, which is just the index, outperforms everything else.

And then when that reverses, everything else that is downstream of that equal weight, mid cap, small cap, value, anything that’s not large growth market capitalization weight starts outperforming. And so I watch that as sort of what is the barometer of what is the market telling us. And so RSP has started outperforming again versus market capitalization weight at around the same time that small cap started outperforming, around the same time that value started outperforming.

It’s only very, very recent. There’s a lot of volatility in that change. We’ve had the big reversal from March 31 through to mid-May. That reversal has sort of gone back to trend now. Then the other thing that I always like to look at is OEF, which is the Russell... sorry, which is the S&P 100 versus the S&P 500.

And so the 100 is the biggest 100 names in the market versus the 500, which is the biggest 500 names. But in this sort of example, the 100 is in the role of the bigger caps. And it has exactly the same chart as the equal weight versus the S&P 500, except in this relationship it’s reversed. The 500 are the smaller stocks and the 100 are the larger stocks.

So when the dot-com boomed, the 100 outperforms. In 2020, the 100 outperforms. Through to 2025, late, 100 outperforms. But the funny thing is that it hasn’t bounced as much as RSP. So what that says to me is that the very largest stocks are actually struggling a little bit, and probably it’s their valuations that are causing that to happen.

So I think that we are in the very early stages of a reversal of what has been a large growth market for an extended period of time.

Jack: This is interesting because we have seen, and he points this out, he points out equal weight versus S&P 500. He points out S&P 100 versus S&P 500. We’ve seen a lot of these signs of things reversing, and we were seeing way more of them early in the year. And the war kind of, as I mentioned in the episode, the war kind of screwed that whole thing up. But now that the war... I guess the war resolved. I guess it’s resolved.

Matt: You know, Jack, it’s a funny story. No one knows what the deal is. It depends who you ask. ‘Cause if you ask certain people, the war is over. But then if you ask certain other people, it might be a little bit different.

Jack: It’s a great question. It’s funny ‘cause I have some friends who are connected in government and stuff, and they were like, “Literally nobody knows what’s in this deal.” Like, even at high levels, people don’t know what’s in this deal. So it should be resolved, I guess, if there’s a deal. We don’t know if it’s good or bad, but there is a deal. But anyway, I’ve kinda gone off topic here. The idea is, like, maybe because that’s happened, maybe we will see some of these signs Toby’s pointing to of small and international and value, maybe that run reversing again.

We’ll see. But it’s interesting, like Toby points out, even with this maybe blip on the screen, you still see a lot of this behind the scenes that the market was broadening out. I think only two of the Mag 7 outperformed last year. This is not the Mag 7-driven market we’ve been seeing for all these years.

Matt: If we’re not in a recession, if we’re not in a global slowdown, if we’re not in the next true crisis that extends through to dampen consumption on a global stage, and we’ll see what the price of oil did and will do. We’ll see all these things that impact consumption. If we are not there, we will continue to get these rotational cycles between these different areas.

And if ever there was a case because of that net issuance idea over the next one to three years where you could still be bullish on the market but have it be in a broadening example, like it’s probably here. The optimist has to look at this and see that through line as a very real scenario playing out.

Now, if consumption slows down and everything else goes to hell, value’s gonna suck with everything else. Let’s be honest. These companies are gonna get demoralized with the biggest of the big. But you can see that path forward if for some reason they seem to keep this up, because governments are still spending a lot of money.

And we’ve forced that spending in the last year or two here. That’s gonna last for a while. My MPT hat says, “Well, this probably doesn’t hurt.”

Jack: Well, demoralize is something that those of us that are value investors do very, very well. So we’ve gotten used to it. If it comes for us again, we’re ready.

Matt: If it comes for you, you’re ready to be further demoralized like a good value, card-carrying member.

Jack: Well, I think we’re actually close to our 30-minute target here, so I will let you bring us home, so I don’t take us too much over it.

Matt: All right. Excess Returns on Substack. Make sure you check it out. Make sure you go to wherever you get your podcasts. All of these things, these episodes this week are just absolutely incredible fire on the Excess Returns channel, I think is how it goes. So, like, comment, subscribe, all the things below. Jack Forehand, thanks for joining me. We are out.