While we hate to generalize or box our thinking into “styles,” we naturally, self-evidently, and painfully—today—consider ourselves value managers. We have had many conversations in recent months as to “when value will be less awful and why.” Our answer generally falls into the following:

1. If something can’t go on forever, it won’t.

2. No one likes to be first and risk catching the proverbial knife. Things change and people react—“the momentum trade.”

3. There are two ways for spreads to tighten—we are only part of the equation.

4. People and companies shouldn’t be “classed.” There is a wide variation in innate DNA in people and companies.

5. And thus we curate. It is more important to our performance that our largest positions do well, and that frankly references more micro events like “get satellites in the sky,” “mine salt more efficiently,” and “enable deals that were about to close but got COVID-canceled to get reloaded.”

6. New administration and new rules? We hear that people don’t like corporate concentration and “wealth inequality,” which may conceivably effect 5 stocks that compose 22% of the S&P 500.

7. More variability in interest rates?

8. Simply valuation. Coke and Cisco were great business in 2000. They are still great businesses, but were lousy stocks for a long time after hitting exalted levels of valuation.

All that said, this chart snagged from a recent Bernstein report is interesting, albeit a relatively short time horizon. The duration of “fade” from superior profitability is something to track in a world that remains mostly competitive. The longer a company can maintain its moat of something special, the higher the valuation that can be sustained. Causation for growth over value—or correlation?