One of the perverse effects of increased indexing and ETF activity is that it will tend to “lock in” today’s relative valuations between securities. When money flows into an index fund or index-related ETF, the manager generally buys into the securities in an index in proportion to their current market capitalization (often to the capitalization of only their public float, which interestingly adds a layer of distortion, disfavoring companies with large insider, strategic, or state ownership).
Thus today’s high-multiple companies are likely to also be tomorrow’s, regardless of merit, with less capital in the hands of active managers to potentially correct any mispricings. Conversely with money pouring into market indices, stocks outside the indices may be cast adrift, no longer attached to the valuation grid but increasingly off of it. This should give long-term value investors a distinct advantage. The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.
Unrecognized Simplicities
Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.
Negotiating
Estimates Miss Earnings
Not Even Wrong
Many ideas that are “not even wrong”, in the sense of having no way to test them, can still be fruitful, for instance by opening up avenues of investigation that will lead to something conventionally testable. Most good ideas start off “not even wrong”, with their implications too poorly understood to know where they will lead.
Process and Product
The job of an Apple industrial designer is to imagine objects that don’t exist and to guide the process that brings them to life.
Voluntary Exchange and Specialization
Evolutionary psychologists have assumed that it is rare for conditions to exist in which two people simultaneously have value to offer to each other. But this is just not true, because people can value highly what they do not have access to. And the more they rely on exchange, the more they specialize, which makes exchange still more attractive. Exchange is therefore a thing of explosive possibility, a thing that breeds, explodes, grows, auto-catalyzes. It may have been built upon an older animal instinct of reciprocity, and it may have been greatly and uniquely facilitated by language — I am not arguing that these were not vital ingredients of human nature that allowed the habit to get started. But I am saying that barter — the simultaneous exchange of different objects — was itself a human breakthrough, perhaps even the chief thing that led to the ecological dominance and burgeoning material prosperity of the species.
Conviction
The best time to invest in something is when nobody believes in it besides you. And you have to believe in it and know why.