“Value investing is dead. Largecaps will never make money. Blue-chips are no longer good buys.”
Statements like these are increasingly populating social media, driving high-decibel pitches for storied themes trading at 80 to 120 times price-to-earnings. Looking at this as an investor, ignoring the noise and thinking critically leads to one clear realization: if the last bull run witnessed the “Buy At Any Price” (BAAP) phenomenon in blue-chips, the current bull run is simply replicating that behavior in midcaps and smallcaps. Capital concentration in expensive themes, the abdication of buying discipline, and mindless subscriptions to wildly overpriced IPOs are expanding the BAAP phenomenon to an unprecedented scale.
The scale of these valuation and behavioral errors in capital deployment is unmatched. Such reckless behavior never goes unpunished in investing. Blind believers in the BAAP philosophy who subscribed to aligned financial products ultimately faced negative ten-year returns; most are exiting only now, as waiting did not help. Investors lost money even in some of the market’s best companies.
The sad irony is that no lessons were learned, and the same mistakes are now repeating in smallcaps and midcaps.
It will be painful to realize you are on the wrong bus when the market inevitably reverts to its mean. The market is unforgiving toward poor investment behavior—that is the only language Mr. Market knows.
