(WCTW) Sign Of The Times
Raising money sucks.
For those of you who are in the investment business, you know how hard it is to raise your first tranche of capital to invest. While all of us understand that money management is perhaps the only business model on the planet with infinite economies of scale. Scale, by definition, is the hardest part to achieve in the money management business.
Of course, once you get scale, scale begets scale, and you grow with ease. But getting through that first hurdle is probably the most difficult. So it's with no surprise to you that my recent bout of money-raising adventure has been somewhat successful and difficult at the same time. It's a sign of the times of the world we live in. The type of investments people are interested in and being contrarian is far harder than riding the trend.
Sign of the Times
Last week, I published a piece bashing the IEA for its unrealistic oil market outlook to 2030. And as I shared the article, the overwhelming consensus on Twitter and my subscribers alike was, "No one believes the IEA anyway." But while this may be true to an extent (for specialists in the field), it couldn't be further from the truth for the generalists.
In one conversation I had with potential clients in Japan, the topic of electric vehicle penetration, renewables, and the like garnered more attention than the global oil supply & demand outlook. As I explained over and over again in the conversation that there are energy companies trading with 15%+ free cash flow yields paying out dividends at ~7%, they couldn't believe such an investment existed.
"Why? What is the market missing?"
It's a sign of the times, I would explain. People think oil demand is going away, and with it, energy companies. Why else would companies like this trade at such a valuation?
But who can blame them? Nvidia is growing earnings at a clip that would make it the most valuable company in just a year. Why would anyone want to buy dinky energy stocks with low single-digit growth and pay out their excess free cash flow via dividends?
Then I catch myself. No, the market always operates on half-truths. So yes, while artificial intelligence is real, and yes, companies like Nvidia are worth a lot more than they were just a year ago, markets get extreme, and when it does, it's always better to be the clear-headed one.
But even as I explain this in my calm tone, you can see it in these people's eyes the disbelief. Market veterans know that the market can remain irrational longer than you can remain solvent, so what's going to change this time? Do you think energy investors waiting to collect on their 7 to 8% yield is remaining rational while tech bros and meme stock traders generate 50%+ returns in a matter of weeks?
It really is temperament at the end of the day. How much discipline do you have to stick to what you believe in? Well, that's about to be tested now.