Attack the Week (ATW)

February 9, 2025

Sunday Thoughts

I met my friend in a quiet London pub, the kind where the wood is dark, the ale is proper, and the air carries the warmth of quiet conversations. The pub owner’s scruffy old cocker dozed beside us, occasionally lifting her head when a patron passed by as if assessing their worth before settling back into her well-earned indifference. She was after our scotch eggs, which accompanied our very tasty organic lager.

My friend, a seasoned fundamental value equity hedge fund manager, arrived looking as if he’d spent the day wrestling with an existential crisis rather than financial markets. He dropped onto the seat, exhaled, and without needing to say a word, I already knew he would need more than a drink.

We don’t often meet in person, but the conversations usually have the same tone. “This market is crazy”. I agree with him, and we recite all the logical facts that would point to the same conclusion. “What gives?” he asks me. I reflect and recall previous occasions of “craziness” I have witnessed. “What if we are still in the early stages?” Can you endure this for another 5 years?” I ask him. His face doesn’t light up, but he confesses that his teenage son’s portfolio would continue outperforming his professional allocation handsomely.

Source: Dall-E

We laughed at first. It was absurd, after all. A professional investor who had spent decades analyzing businesses, combing through balance sheets, and identifying intrinsic worth—outshined by a youngster who had, with untainted enthusiasm, picked stocks like he was choosing sweets. A bit of Tesla here, some Nvidia there, a sprinkle of Bitcoin for good measure. No grand theses, no careful risk management, just an almost comedic embrace of whatever was working.

“What times are we in?” he asked, shaking his head, staring into his pint like it might hold the answer.

I shrugged. “Oftentimes, it is more important to identify the present rather than what you think is right when it comes to compounding Dollars.” He nods in agreement.

For years, he had operated under the belief that fundamentals matter and that, in the long run, rationality prevails. But the market didn’t seem to care. Narrative trumped numbers. Hype outweighed hard analysis. Multiples expanded beyond comprehension, and those who questioned them were simply left behind. It was a bull market built on momentum, on liquidity, on dreams that refused to be discounted.

“You are right,” he said, scratching the pub dog behind the ears, “this game isn’t about being right. It’s about making money.”

That was the paradox, wasn’t it? We both agreed it was crazy, but you either played the game or you got played. Experience and principles were meant to be a guiding light, but when the market defied gravity, sticking to your discipline could feel more like a curse than a strategy.

My friend’s example is that of many seasoned investors. It is a sign of our times. It reminded me strongly of

Le Shrub

and him coining the current times as “GAG”, the golden age of grift. I couldn’t agree more. With a new presidency in place, a new risk preference and age might be unlocking just in front of us. What I see is no signs of de-risking but more justification for why lofty valuations could expand further.

“When you see a bubble, you first buy it” is allegedly one of Soros’ many quotes. There is no question that a correction will come and will cause tremendous pain. I think any semi-experienced investment professional knows the game will be up, and we are all dancing while the music plays. Let’s not be blinded by what constitutes our aim of compounding returns with our principles and knowledge. This is where a proper process will be the determining factor between success and failure. The market will burn many, and it’s where the grifters will have to learn the hard lessons. It happens every time.

At Paper Alfa, we educate, analyse and run our process with the goal of compounding returns in a risk-managed way. We want to protect first and ideally hit a few home runs and some tactical trades with it. There is no room for dogmatic or normative thinking in this space. We don’t operate on how the markets should be and why they are wrong and we are right. That’s nonsense. We stipulate a thesis of what can likely happen and which side of the bet we are willing to engage in. That’s it. No grift, just process. Interested? Hit the button below and start a trial.

Let’s now read Macro D’s latest thinking before we briefly scan the week’s upcoming calendar. We then revisit some charts, which give us some interesting set-ups. As always, we close with a look at the output of our asset allocation model. Last week, it switched to buying bonds, which seemed very timely. Is it still holding an allocation to equities?

Let’s find out and attack!