Yesterday, Oracle Corporation (ORCL-$310.98) increased in price by about 1/3.
Oracle, in their quarterly earnings release, indicated that their AI data-center business has such a massive runway that they anticipate the AI data division alone may produce about $140 billion in annual revenues in 2030. Assuming a 50% EBITDA margin, that $70 billion, all else being equal, may eventually account for about $1.4 trillion in capitalization. Over and above this EBITDA and revenue, there would still be considerable revenue and earnings power generated by the legacy business at Oracle. Hence the immediate and powerful revaluation for the shares.
What is the response of the retail investor and the quasi-institutional account, when presented with an announcement that the future earnings power of their equity is significantly enhanced, that they were correct in making a purchase prior to that revaluation?
Based upon my inbox, the choice, as ever, was to lighten up, to “take some money off the table“.
For decades, we have been advised, told, sometimes admonished, that the stock market represents a compounding machine. That advice has been delivered by some of the most widely admired investment managers on the planet; who, inexplicably, almost always, fail to act in accordance with their pronouncement.
Larry Ellison is now the wealthiest man on the planet because he has opted to compound his capital, rather than apply the transactional approach of those who have less money.
Selling an investment, for no other reason than a change in price, represents anti-compounding. That’s known, understood, yet evidently, completely and entirely ignored to suit one’s bias. This obstinance, the unwillingness, to incorporate new information into one’s modeling purely to suit a predilection for trading, represents THE single greatest impediment to capital accumulation, to wealth building, that has ever existed.
In the case of Oracle, based upon the greatly increased revenue and EBITDA forecast by a single division of the company, so large that that the AI data-center business will become dominant within a readily determinable time-frame; incorporation of the newly calculated revenue and EBITDA forecast into one’s model would produce output indicating that the logical action of a current or prospective investor should be to purchase, not to sell.
Yet, the compulsion, the fixation, the anti-compounding obsession, to sell “some”, forces one to seek out another investment, to incur a current taxation payment, all for the sake of bias.
I wrote all of this, quite recently. A revaluation of Oracle should have come as no surprise, because it was widely telegraphed; a trend to be surfed.
This fixation upon transactions, I NOW believe, is untreatable for almost everyone.
It represents the financial equivalent of a DSM-4 diagnosis of an obsessive compulsive personality disorder (OCPD), a fixation upon control, based upon fear. The fear of an investment going down outweighs the upside associated with being correct, leading to a choice of selling, in order to exert control over a very small portion of the outcome. The conundrum with such a fixation is that one is selling in the face of being proven correct with their thesis. It is akin to a financial parallel of “my race car just blew away all of the competitors in this race, so I guess that I will sell it and find a different car for the next race”.
I have confronted such bias from both retail and institutional accounts outside of my direct oversight, in each and every instance over the past decade when an equity undergoes a major revaluation.
All of us have equal access to the same information, yet for the vast majority of accounts that generate inferior returns, their transactional bias overrides logic. Retail is particularly poor at the transaction, institutions are particularly bad at the modeling. They both fixate on different parts of the portfolio, but the result is still subpar, subpar for different reasons. My focus is neither on a specific investment, nor a specific model: my approach is to select entirely on the basis of capital compounding potential without the need for oversight. This is blasphemous to both the transaction oriented retail investor and to the modeling actions undertaken by institutional accounts; neither can accept the premise of a no-trade policy as it violates their worldview. Accordingly, neither will change their practice.
In the past quarter, retail and non-client quasi-institutional, pseudo-institutional, “pretense” institutional (those who declared themselves to be institutional investors without significant sums of capital at work) and actual institutional accounts have been exceptionally unruly.
Too many have decided, unilaterally, arrogantly, that certain specifically spelled out rules of contact, laid out in writing to such a detail that there can be no misinterpretation (unless one has an actual learning disability), that these communication protocols do not apply to them specifically, only to others; that they have an exemption, because they are an institution or believe that they have institutional clout.
All have been told, institutions included, repeatedly, to not forward on third party research, to not link me Powerpoint presentations. They grudgingly concede, for a brief interval, only to resume when they think that they are out of the penalty box. And what they forward is dross, drivel, garbage; all produced by those whose track records should place them at a full-service gas pump instead of an investment firm. Significant capital under management does not impress me, nor should it impress anyone. What matters is how that capital was amassed. If it was gathered, not compounded, then nobody should be the slightest bit dazzled by a $9 billion, a $90 billion, a $900 billion or a multitrillion dollar AUM. Investment compounding without resorting to front-running impresses me, nothing else. On that basis, almost the entirety of the professional institutional investment industry should be fired; in the coming era of AI investment management, they will be.
This blog specializes in long form communication, designed to promote a more thoughtful outlook, rather than a transactional approach. Amazon executives have banned the “salesy” Powerpoint, as have many large companies, because it is NOT thoughtful, not deep. Long form is THE format to work through a thesis, Powerpoint is for chumps.
Yet institutions refuse to modify policy, for no basis other than a need for control, a misplaced belief that a “gathered” book of business impresses me, and a hope to incorporate a smattering of equities that may fall into their model, into their inferior return. Again, this is anti-compounding, because an inferior model needs to be replaced, rather than goosed up on a temporary basis. When the structure is not sound, then there is no point inhabiting it. Why would one choose to inhabit the worst house in the best neighborhood when an actual change for the better might permit them to inhabit the best house in the best neighborhood?
Retail investors are utterly lost.
This blog has expended considerable mental capital over the better part of the past 24 months detailing a global investment thesis in support of increased portfolio exposure to artificial intelligence equities. Yet, what continues to bombard my inbox are questions, not regarding AI, but rather, on a smattering of the smallest cap equities within a mega-cap portfolio. Retail has now completely missed the boat, because they chose to NOT get on the boat. Most read the posts, thought “ya, that makes sense” and then immediately went back to obsessively compulsively fixating on their subpar commodity equity model, trying to find out how those equities might get a transitory bump from AI.
My “herding of cats” has become too tiresome to continue.
Institutions are NOT interested in growing capital through successful compounding. Their business focus is to gather capital. It is a structural issue.
Retail investors are not interested in growing capital through successful compounding. Their personal focus is fear based, to take capital off the table at every opportunity, to sell winners and to hold losers, griping and muttering as they do so, knowing, deep down, that they are hurting their results, but choosing not to do a bloody thing about it.
This open blog, for both institutional accounts and retail alike, represented a form of cognitive therapy, designed to identify gaps in logic and to modify unproductive investment behaviors.
Those who were willing to modify such behaviors have benefited greatly, so I have been told, as I have seen first hand, via the wealth building for those who acted upon the opportunity, years back to have a model account.
But, like those suffering from obsessive compulsive personality disorders, who refuse to acknowledge that they have a problem, proactive investment treatment will not be successful when one refuses to accept that they have a capital return problem. And unless one has a superior equity result, to that earned from the model account over time; yes, they have a problem, that problem is a counterproductive need to stand in the way of compounding, leading to deliberate anti-compounding.
At the conclusion of this fiscal quarter, I will no longer be posting any further updates to the open blog.
The great issue that has plagued the open blog is my unwillingness to charge a hefty fee for access by the public. Clients are completely separate from that segment, yet for all intents and purposes, only differ in the respect that I directly or indirectly oversee their assets (via intermediary investment banks); each have individually amassed capital return in excess of $158 million (09/10/25), per SMA account (on the original $1 million investment). They understand the value proposition completely and, assuming that the service department is not pumping up my ego, would walk through hot coals rather than impair the current relationship. They pay a fee, do not hassle either me or my team and have become exceedingly wealthy in return. They are more concerned of me potentially firing them, than I am afraid of them firing me.
Yet, non-client readers are of the opinion that complimentary access to cutting edge commentary, on-point investment views and thoughtful, forthright, global equity analysis is a novelty, of zero value. Reciprocity is NOT the mindless emailing to me of your thoughts on matters that I, my experts and my team, have already scoped out. Nor is reciprocity an envious “congratulations” as an investment performs as designed or when a portfolio return is earned as intended; to the contrary, it saddens me greatly, because such an acknowledgement means that the reader has NOT earned a comparable return, that they missed the boat again, and that they continue to engage in suboptimal investment behaviors, or else they would be generating comparable returns themselves, and no congratulations would be necessary.
For most, a congratulations of the return generated by a specific equity move or a quarterly performance update that is superior to returns posted by indexes indicates shock with something that was deliberately goaled out and planned for; they didn’t take the work the least bit seriously and discarded what was written as irrelevant. I just followed the road map to reach a destination on that map, why would that be a surprise?
When we are both in the same boat, rowing at the same pace, moving in tandem, there is no distance between us.
For decades, I had steadfastly worked towards placing non-clients either into my boat or directly behind, so that that we could advance together or that at least one could be easily towed in the wake. Now, the gulf is too wide, they have refused to participate, to change their inefficient ways of investing. They didn’t get it and did not earn it, because they did not place an appropriate value on the proposition.
This was never a free service.
The price was that you had to change to benefit. It represents a personal cost, not a capital cost, but an extremely high price to be paid nonetheless. One was required to acknowledge that virtually the entirety of their prior investment life represented a “sunk” cost, time and money squandered, and that it would need to be written off. Nobody, outside of clients, was prepared to pay that price.
Investment Cognitive Therapy only works when one understands that they have a problem. Too few accept that premise.
You cannot permanently outperform under a fear based outlook.
You do not manage equity moves, you merely participate.
Desist with your futile efforts to control investment outcomes, because all that occurs is anti-compounding.
Leave a Reply
You must be logged in to post a comment.