It’s a common trope to say you learn more working than you do in college. However, the more time I spend in the arena, the more I come to appreciate the fundamental knowledge that comes from going to business school. Everyone who’s ever written a book on a subject in business has written from either experience or research, so once I started working, I started to see how these conclusions would come to be. The one place that seems to have no standing ground these days is public markets. Since the pandemic, the market has just been reactionary and to some extent, simply unpredictable — but I guess that’s the point.
DJT
A review of Trump in markets. Some basic: A Special Purpose Acquisition Company (SPAC) serves as a vehicle to take companies public through a merger. Digital World Acquisition Corp. (DWAC) is one such SPAC that merged with Trump Media & Technology Group (TMTG), the parent company of former President Donald Trump's social media platform, Truth Social. The merger was approved by DWAC shareholders, and TMTG began trading under the ticker symbol "DJT," representing Donald J. Trump.
It’s a bit of a mess. Despite a significant decline in its stock price and a reported loss of over $58 million in 2023, its market capitalization remains well above $6 billion. This discrepancy between the company's financial performance and market valuation suggests that ownership of DJT shares is more a political statement or a show of support for Trump than a traditional investment based on business fundamentals. The future of DJT is uncertain, given the volatile nature of SPAC mergers and the unique challenges faced by TMTG. Would this still exist post-election?
Which brings me to Matt Levine’s recent column where he tries to make sense of all this. Back in the day, like before the 1960s ish, stock trading was akin to a psychological gambling game, largely due to the scarcity of high-quality public financial information and the absence of tools like Microsoft Excel. The evolution of stock market speculation has transitioned from a period where fundamental analysis dominated, relying on audited financial statements and computer technology to estimate company value, to a more recent shift in perspective. This change challenges the traditional link between a stock's price and the present value of its future cash flows, an idea you learn early on in Finance 101. As the market collectively reevaluates stock valuation, prices may no longer adhere to fundamental analysis, suggesting a return to viewing stocks as tokens in a psychological gambling game. This shift indicates that stock valuation could be increasingly influenced by factors such as collective attention and online sentiment, rather than solely by financial fundamentals.
There is no law of nature requiring that a stock’s price has to equal the present value of its future cash flows, or even that it has to equal the market’s collective estimate of its future cash flows. That’s just a matter of tradition, and the tradition is only like 80 years old. But the tradition could always change. - Trump Media’s Business Doesn’t Matter, Bloomberg
Some like to think the market is a physical system dictated by the laws of physics, but it’s not. It’s human behavior. It’s reactionary. It’s just a bunch of people, mostly suits, making decisions based on new information.
An Experiment
The two most valuable things at the moment are art and technology. Among the richest people in the world, the top spots are usually between Elon Musk (Tech) and Bernard Arnault (Luxury Fashion). While most investors are interested in tech, I think there’s value hiding in fashion. Just look at Selena Gomez’s Rare Beauty shopping offers as high as $2 Billion. With this in mind, I took an interest in Gap. This is not financial advice.
We all know the Gap, a prominent name in fashion. While it’s not high fashion, it is a good indicator at what everyday Americans are looking to wear. They recently welcomed Richard Dickson as its new President and CEO. With its diverse portfolio of brands including Old Navy, Banana Republic, and Athleta, Gap operates in a competitive market that demands constant innovation and adaptation.
As the new CEO, Dickson is expected to bring a fresh perspective to Gap, leveraging his experience in brand transformation to steer the company through its current challenges. His track record at Mattel, particularly with the Barbie brand, suggests a potential for injecting creativity and new energy into Gap's operations. Shareholders and industry watchers are hopeful that Dickson's arrival will mark a turning point for Gap, as he aims to replicate his success with Barbie and drive the company towards sustainable growth and renewed market relevance. And that’s what I bet on, hope.
This was back in October The stock was low, but I had a gut feeling that a new CEO with a mission to transform the company would create buzz. Buzz moves prices. If investors like what they hear, they’ll be willing to pay more for the stock. That’s it. Yes, I did some research and looked at they’re financials just to make sure the company was healthy, but I didn’t do the whole discounted cash flow thing that I learned in business school. I can hear my Finance 303 professor screaming at me right now. Sorry.
With time, I have become more comfortable with the answer to “what are we all doing here?” The answer is “not fundamental analysis.” Maybe it is “having fun online.” Maybe it is “playing a complex game of mass psychology.” Maybe it is “using our investments as a form of self-expression, buying stocks and cryptocurrencies we identify with and feeling better about ourselves if they go up.” The third era is new, and we do not understand the mechanisms here as well as we understand discounted cash flow analysis, but maybe there are mechanisms to discover; maybe in 10 years there will be textbooks on Meme Stock Analysis. - Trump Media’s Business Doesn’t Matter, Bloomberg
New CEO with new vision to make Gap great again. Then Zac Posen is chosen as the new creative director. Each announcement bumped the stock higher and higher. I bought at $7 and sold at $27, that’s a solid return. And thus, my attempt to make sense of this new market hysteria hypothesis was a success. But like every great trade, it works until it doesn’t. This is not financial advice.
Thank you
I’ve been toying with the idea of starting my own business. There’s nothing more American than trying your hand at entrepreneurship. A lot of it, I’ve noticed, is just experimenting. You have an idea and a skill, you then just repackage that product in every way you can think of until something sticks; until you find product market fit. I’ll be writing more about these experiments and we’ll see where this goes. As always, if you have any questions, want more explanations, or strongly disagree, comment below, follow me on Twitter (X), follow me on Instagram, or shoot me an email.
Disclaimer: These views are my own, and do not necessarily reflect the views of any organization with which I am affiliated with. This article is written with AI assistance.