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 their internal or 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. And, 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 dwell at the worst house, in the best neighborhood, when an actual change for the better might permit them to reside at the best house in the best neighborhood? Why put expensive shingles atop rotten joists? If the structure is unsound, then tear the entire building down and build a proper home. Stop covering up flaws with DIY patch-work.
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.
Despite this focus, 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.
Questions regarding Taiwan Semiconductor? None….because Berkshire Hathaway actually traded TSM, and didn’t just trade it, but traded it badly, selling TSM for a loss. Retail investors and institutional accounts that rely upon Berkshire as their investing proxy, promptly shut down any notion that a CEO closing in on 100 years of age, overseeing a conglomerate featuring a current share price underperforming major American indexes in 2025, on an absolute basis, might, in fact, be the entirely wrong choice to serve as an anchor for growth equity modeling.
The scientific method revolves around the testing of the veracity of any thesis; yet questioning whether a value oriented, front-running, holding company, knows the first thing about AI, is sufficiently provocative that readers choose to tune out, rather than ponder the possibility that their anchor is just mired in the muck, impeding momentum.
In 1991, Warren Buffett met Bill Gates in person for the very first time. Then, Berkshire Hathaway boasted a market capitalization of $15.6 billion and Microsoft sported a market cap of $12.4 billion. That meeting has been widely reported in the media, during which, among other oft-repeated stories, the Chairman of Berkshire Hathaway talked up how people will always purchase gum, whereas technology and related investments come and go. Based upon transcripts and third party anecdotes, Buffett consumed about 90% of the meeting time. regaling Bill Gates with endless anecdotes on the benefits of value investing. Chairman Gates, being a polite sort, more than likely “coding” in his head or working out a technology issue non-verbally, let the one-sided exchange persist for an hour or so, and then went back to work.
Today, Microsoft has a market capitalization of $3.9 trillion USD, while Berkshire reports a market cap of $1.08 trillion. Of that $1.08 trillion, roughly 20% of the expansion was due to a merger with General Reinsurance, not from compounding of profit. This differential settles ANY debate on the merits of growth vs value. A great growth investment has outperformed a “great” value investment by close to 400%, more than 100% every decade. And had the CEO of Berkshire Hathaway actually used that meeting time productively, learning about Microsoft rather than lecturing Mr. Gates on value investing, Mr. Buffett might have recognized the opportunity that was Microsoft and added shares to the portfolio of Berkshire, for the benefit of the common shareholders. Just $1.9 billion, had it been invested in Microsoft after that meeting date, would now be worth $515 billion today, potentially 1/2 the entire current market cap of Berkshire.
For the better part of the past 4 decades, value investors and those blindly following Berkshire Hathaway; those investors have been off course, have continued to fall behind, now so far behind that they will never catch up. Value investors have been had as they chose to build their portfolios on a heavily marketed, yet demonstrably inferior framework, propped up, entirely, by a cult of personality that provides front-running cover. To this day, fans continue to let an old man opine on relative victories of prior decades, while completely glossing over the absolute failure to grow capital by a level required to keep pace with equity investment inflation.
Questions regarding Palantir, an 18+ bagger since ownership? None, because equity investors, being enamored with trading, have arbitrarily decided that they can pick tops and bottoms and are hoping for it to fall to $50 per share prior to considering it as an investment. Oddly, those persons didn’t acquire the shares when it WAS $50, because a stock doesn’t appreciate from $9 to $190 without hitting $50 per share on the journey.
Questions regarding Microsoft? No interest, because investors have decided that a $500+ stock price is out of their league, despite a multiplicity of investment platforms that enable one to purchase fractional shares for portfolio assembly.
Retail has now completely missed the boat, because they chose to NOT get on the boat. Most read my 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, where the shaving of points on transaction spreads and leverage interest kickbacks has replaced management fees as the primary source of revenue. It is a structural issue that makes a buy-hold model, no matter how successful, an impossibility under their business practice. Accordingly, virtually every institutional account knocks at my door with the same business proposal: “how can we take this portfolio and increase trading volumes significantly to earn our required profit margin?” I am sick of explaining that they cannot do so; I won’t permit it under any circumstances. This model isn’t about earning a significant custodial profit or implementing a new profit participation fee to cut into return for unit-holders, it is ALL about the holders of the portfolio earning a superior return.
Retail investors are also 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.
The open blog, for both institutional accounts and retail alike, represents a form of cognitive therapy, designed to identify gaps in logic and to aid in the modification of 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. These accounts are more concerned of me potentially firing them, than I am afraid of them firing me.
Unfortunately, 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” when an investment performs as designed or the portfolio return is earned as intended. On the contrary, it saddens me greatly, because such an acknowledgement means that the reader has likely NOT earned a comparable return, that they missed the boat, yet 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.
When we reach the peak, together, nothing needs to be stated; we are all too focused upon the view at the top to speak. So for most, a congratulations, noting a return generated by a specific equity move or a quarterly performance update, superior to returns posted by indexes, indicates shock with something deliberately goaled out, costed out, planned. The implication is of a disbelief in the process; they didn’t take the work the least bit seriously and discarded what was written as irrelevant. Yet, I just followed the road map to reach a destination on that map, why would it be a surprise?
If 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 far 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. I can no longer see them and they, too, have lost sight of me.
This was not a truly free blog.
The price of readership was that you had to change your ways in order to benefit. The cost was personal, not a capital cost, but an extremely high price needed to be paid nonetheless. One was required to acknowledge that virtually the entirety of their prior investment life represented a “sunk” expenditure, time and money squandered, and that it would need to be completely written off. This personal expense was entirely front-ended; stop with your garbage investment style, scrap your model and start fresh.
Nobody, outside of clients, was really prepared to pay that price, so most tried a compromise, maintaining the bulk of their former portfolio, supplementing their anchored account with an occasional selection from the model account to suit their whims. And for those, the blog becomes nothing more than an enabler, propping up inferiority just enough that investors wouldn’t effect permanent change.
To those, I can only restate, don’t pick and choose a couple of equities from my portfolio that suit your bias, because your bias stinks and has prevented you from compounding enormous wealth. And do not argue the point, even in your head, because if your track record was superior, you would not be reading this blog, I would be reading yours.
It was never my intention to become an enabler, and that stops now.
One single investment, Apple Inc., enabled Berkshire Hathaway to make, sustain and average down, lousy purchase after lousy purchase; slow growth railroads, hedge-wild reinsurers, low margin heavily leveraged commercial banks, truck-stops, petrochemicals, oil & gas producers, utilities saddled with contingent lawsuit liabilities that place them on the verge of bankruptcy, Kraft Foods. Unremarkable investment after unremarkable investment.
The return on Apple was so spectacular that paper gains and realized gains from share sales propped up a variety of ills, a source of funds to make inferior, commodity, low margin, and increasingly, damaged, equity investments with only one common denominator, that the capital book of the acquisition could subsequently be hedged by a monolithic, opaque, capital desk.
Apple was the enabler for Berkshire, providing funds to make ordinary and less-than-ordinary investments, when what was needed then, as it is now, is structural change.
No longer will I permit my blog to serve as a variant of an “Apple for Berkshire”, providing timely stock picks to juice up or bail out inferior investments touted by subpar managers or investors, in other portfolios.
Berkshire Hathaway created, encouraged and perpetuated an entire generation of very stubborn, entirely ordinary investors, both institutional and retail.
The siren song of Berkshire’s value focus was fear instead of possibility, relative value rather than compounding potential, garbage over growth. The media declared that Buffett, and only Buffett, could pick stocks, so just do as he did and his subjects would be fine. Well, they aren’t fine, not in the slightest, and, increasingly, are scrambling to find a replacement guru.
What was always missing in the mythology of Berkshire was the obscuring of the degree of hedging employed by the Berkshire capital desks.
The incoming CEO of Berkshire is just another non-descript insurance exec who will be forced to continue hedging every line item on the Berkshire revenue and expense accounts, quite possibly with a goal towards hiding an actual mess left behind. It may take years to make the true financial state of Berkshire transparent and for the public and analysts to better comprehend the absolute percentage of the business book completely reliant upon hedging and financial engineering. I would not personally, nor for my clients, touch the shares with a 10 foot pole and I am done, absolutely done, battling with the lot of those who hold the value style up to a standard, laid bare, as being lesser based on return.
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.