Investing isn’t a game of analysis; it’s a game of meta-analysis. We can’t predict the future with any degree of accuracy. But market valuations reveal the distribution of other people’s forecasts, and we look for places where optimism or pessimism have become extreme. Mordecai Kurz calls these “correlated beliefs,” places where everyone thinks the same way, causing prices to move into excesses of speculative mania or depressed hopelessness. Markets are mostly efficient, but we have nevertheless observed several of these “correlated beliefs” emerge over the past decade since Verdad began. Not long ago, every institutional allocator believed private equity would magically outperform every other asset class and thus merited sometimes a 40% or greater allocation. We were one of the only skeptics, willing to call BS on this growing enthusiasm (see our major article in 2018). Our understanding of private markets led us then to be early in warning of the risks in private credit in 2020. When others were running for the exits during COVID, we declared in March 2020 on Patrick O’Shaughnessy’s podcast, Invest Like the Best, that this represented the best buying opportunity in public markets since the great financial crisis. The market had formed a correlated belief about an impending depression, and we took the other side. Sometimes entire countries can be effectively abandoned by investors. After the lost decades, Japan was thought to be dead money. In article after article, we wrote about the pessimism baked into share prices and the real structural reforms that were coming into play. Our goal at Verdad is to identify these big structural mispricings and take the other side of the consensus, using deep empirical research to lay out the contrarian case. Today, the market is yet again pricing in an extreme consensus belief, this time around AI and semiconductors. There’s an old saying that, on Wall Street, there are no bad ideas, only good ideas taken too far. That’s exactly what we are seeing today with the AI trade. Valuations paint a clear picture of an industry where consensus has passed from optimism to mania. The chart below shows valuations by industry today versus the 2010–2025 average, where the bubble size is share of global market capitalization. Figure 1: Current EV/Sales vs. Historical Avg. by Industry (2010–2025) |
