Current Affairs
How often have you heard or read someone use a sports analogy to describe commercial society? Games are great fun, but they have winners and losers in ways exchanges don’t. Exchange is not, as Manuel F. Ayau reminds us, a zero-sum game. Here are a few ways sports and games don’t map cleanly into the business world.
The Market is Not Monopoly. This classic from Parker Brothers, which is outstandingly enjoyable if played correctly, combines just the right amount of acumen with just the right amount of randomness. Your every move involves a roll of the dice, but once you’ve handled what randomness has thrown at you, you can start wheeling and dealing. When I was in college, a friend who was doing his student teaching noted that the high school teacher he was working for wanted to try to teach the students the lessons on economics by having them play Monopoly. At the time, I thought this was a terrible idea. I only grew in this conviction over time, especially after Benjamin Powell and David Skarbek published this fun piece explaining how “Parker Brothers Gets it Wrong.” Monopoly has a clearly-defined winner (whoever is left standing at the end of the game) and clearly-defined losers (everyone else). You win the game by systematically bankrupting your opponents. Every trade you make is strategic in the sense that your friend on one turn will be your enemy on another, and you know that only one of you will be left standing. Maybe this is a good metaphor for the real estate industry in a very well-defined space. It is not, however, a good metaphor for commercial society.
“A Level Playing Field.” What matters is having fair rules that treat everyone equally. This is definitely where every society in history has failed miserably. Once again, though, business isn’t a game we play against one another. It’s like one of those cooperative games where you work together to solve a puzzle or something. No one should get special privileges.
In games like golf and bowling where there’s some friendly competition, people use handicaps to even the odds a little bit. When I play Harry Potter Trivial Pursuit with my daughter, she has to answer every question on the card while I only have to answer one (I still lose badly). This doesn’t translate to commercial society, though. Golf, bowling, and Trivial Pursuit are zero-sum games with winners and losers. In what is “properly speaking, a commercial society,” you improve your position by helping other people improve theirs—and not to your disadvantage.
Life Isn’t A Race. The same is true of a race. There is no “starting line.” Someone born into a family might have a better chance of gaining admission to an elite college or university, but there are a lot of substitutes out there for Harvard, Stanford, and Yale (might I recommend one?). If you define things narrowly enough, we’re playing zero-sum games in the very short run. Someone else got the job at Harvard I wish I had, and I can tell myself “if only” stories all day long about how if only this thing or that thing had been different, I would have developed the technical and analytical skills that would have placed me at the highest ranks of the economics profession. Just because someone else has a job at Harvard or Princeton, though, doesn’t mean I can’t have a perfectly fine job at Samford and a perfectly fulfilling life in Birmingham.
It’s easy to make the mistake of thinking about competition incorrectly when you’re defining things too narrowly. Another firm that makes a product very similar to yours is definitely a competitor. Potential customers, however, are not—though it’s easy to think adversarially about negotiating and efforts to split the gains from trade. Once you make a deal, there might be this nagging sensation that you could have gotten a slightly better deal if only the scoundrel across the table from you weren’t so selfish (why her regard to her own interests rather than yours is blameworthy is more or less unanalyzed). You shouldn’t lose sight of the fact that you both agreed to the deal because it made you both better off.
Sports and gaming metaphors certainly have their place, but if we take them too seriously we get lost in details and lose sight of the greatest positive-sum game in the world: specialization and division of labor. When you’re bowling or playing a board game, there’s a winner and a loser. When you’re bargaining, however, everyone’s a winner.

Equities: choppy near All-Time Highs, US Dollar: weaker, commodities: smoking hot!
The S+P 500 index chopped up and down within a narrow range this week after surging ~9% the previous four weeks. Implied volatility was also choppy day-to-day, but it was close to one-year lows at the end of the week – a sign of complacency.
My view the past couple of weeks has been that the market is, once again, “priced for perfection” and is at risk of (at least) a mild correction sometime within the next few weeks. I’ve taken small, limited-risk positions in anticipation of a correction, but I’m wrong on that call so far. I’ll discuss my trade timing in the Trading section below.
The major stock indices have had spectacular rallies since the panic lows made in March last year. The S+P is up ~90%, the Nasdaq 100 is up ~110%, and the small-cap Russell is up ~135%. Last week I noted that the rally had been in two roughly equal parts, 1) March 2020 to November 2020, and 2) November 2020 to now.
What drove the rally? CLICK HERE

Our friends over at Integrated Wealth Management thought our readers would enjoy this article. ~Ed “Going forward, active management of portfolios versus passive index investing in ETF’s will be more important than ever because market weighted indexes are too overweight in tech, those tech stocks are at high historical valuations and a rising interest rate environment will impact these stocks. So good stock selection will pay off for investors.” ~Andrew Ruhland, Integrated Wealth Management.
It’s no secret that money has poured into passive equity vehicles as investors seek low fees above all else. To date, that has worked out just fine since equity indexes have compounded their returns at acceptable, if not above average, rates of returns. But, the world is different now than it was 10 years ago, and the low-cost advantage of passive investing may now be outweighed by its risks.
In this quick post we’ll address three risks to passive investing that together suggest the riskiness of this strategy may well be the highest it has ever been. Click here to read more.

During a recent CNBC interview, Jeremy Siegel suggested stocks could rise another 30% before the boom ends. Just when it seems like “euphoria” can’t get much more “euphoric,” every bullish guest in the financial media attempts to “out bull” the previous.
“It isn’t until the Fed leans really hard then you have to worry. I mean, we could have the market go up 30% or 40% [this year] before it goes down that 20%. We’re not in the ninth inning here. We’re more like in the third inning of the boom.”
Such isn’t the first time someone has made these types of predictions.
In 2013, I made the same statement:
“Despite all of the recent ‘bubble talk,’ it is entirely possible that stocks could rise 30% higher from here. However, it is not because valuations are cheap. As I discussed in my recent analysis of Q3 earnings, stocks are trading near 19x trailing earnings.”
Of course, the reason at that time was more “Quantitative Easing” from the Fed. Bernanke was rapidly expanding its balance sheet as automatic spending cuts from the “Debt Ceiling” comprise started. However, the “fiscal cliff” never occurred, and massive amounts of liquidity flowed into asset markets instead.
While Siegel makes some valid points about the coming economic expansion due to massive fiscal liquidity, there are significant differences in the technical and fundamental underpinnings.
Valuations Are Astronomical
In 2013, as noted above, valuations on stocks were around 19x trailing earnings. While certainly expensive, valuations had not yet eclipsed previous “bull market” excess of 23x earnings. As shown below, even if we assume no increase in the index price, the market will remain well above 20x earnings over the next two years.
It is worth noting that historically when the market has traded at such a deviated level from valuations, forward returns have not been good.
Furthermore, earnings are currently trading well above the long-term exponential growth trend, and expectations are earnings will surge to a new peak by EOY 2022. Given this deviation from the long-term trend, it leaves a good bit of room for disappointment.

Meet the $40B+ ‘software robot’ maker poised to automate pencil pushing
UiPath’s software does robot-like work for humans — tasks like filling forms, moving files, inputting data, and scraping documents.
A company you’ve probably never heard of made IPO history this week.
UiPath, an automation company, made its market debut and notched the 3rd largest US software IPO in history, behind only Snowflake (No. 1) and Qualtrics (No. 2).
By market’s close on Wednesday, the company’s market cap had settled at a hefty $35.8B — which leaves only one question…
WTF is UiPath?
The company was founded in 2005 by Romanian entrepreneurs Daniel Dines and Marius Tîrcă.
Originally called DeskOver, UiPath was based in Romania but later rebranded and moved its HQ to the US in 2017. Today, about ¼ of its ~3k employees are still based in Romania.
UiPath helps enterprises automate tedious manual tasks done on computers, something they refer to as RPA or…
… Robotic Process Automation
They call their automations “software robots” that do robot-like work for humans — tasks like filling forms, moving files, inputting data, and scraping documents.
The real gem is that creating these software robots requires no coding, and they can interface with existing software using AI-fueled “computer vision” — think robots actually seeing what they click.
This all rolls up into a serious business:
- $580m in annual recurring revenue (+65% YoY)
- Margins up to 89% (the highest in software)
- 7,968 customers (+32% YoY)
And according to UiPath, the market for robot automation is expected to reach $30B by 2024, up from $17B in 2020.
