| Areté Quarterly Q1 26 |
Business update
One of my core beliefs is that knowledge is a good thing. This idea is formalized in the book, The Origin of Wealth by Eric Beinhocker. He defines wealth as physical arrangements of matter that are “fit” in the sense of serving human purposes. While he argues that evolution is the most effective process to achieve “fitness”, it is fair to think of that state as “knowledge”.
While this may come across as especially abstract, it is actually quite relevant for investors. After all, what investors are ultimately trying to do is capture the rewards of knowledge creation machines (i.e., companies).
From this perspective, it might be shocking to discover that stock indexes can move dramatically based on decidedly unknowledgable things like social media posts by the president or on rumors that can easily be disconfirmed. However, that is exactly the world in which we currently live.
I bring this up for two reasons. One is that the fundamentals of a company are absolutely critical to its long-term wealth creation. As a result, developing insight into the stream of cash flows a company is likely to produce is also knowledge – which is fit for the purpose of efficiently allocating capital to the most productive companies.
A second reason is that such analysis may not matter for long periods of time – during which stocks trade based on stories of what might be rather than what is most likely. This is the state we find markets in today – always looking for the next interesting trade, but at the expense of the longer-term journey.
As a result, the eventual outcome is quite likely to be a significant decline in stocks. Companies that engage in financial engineering to boost the stock price instead of profitably serving human purposes deprive both the shareholders and the economy of long-term value creation. These types of problems become quite evident when the financial tide rolls out.
The main point is the process of creating wealth and reliably harvesting it is essentially one of ongoing knowledge development. Stick with that and the short-term zigs and zags just don’t matter very much. Veer away from that, and the potential for permanent losses escalates.
If you have any questions about what I do or just want to learn more about the All-Terrain strategy, please reach me at [email protected]. I look forward to it!
Thanks for your support!
David Robertson, CFA
CEO and founder, Areté Asset Management
One of my core beliefs is that knowledge is a good thing. This idea is formalized in the book, The Origin of Wealth by Eric Beinhocker. He defines wealth as physical arrangements of matter that are “fit” in the sense of serving human purposes. While he argues that evolution is the most effective process to achieve “fitness”, it is fair to think of that state as “knowledge”.
While this may come across as especially abstract, it is actually quite relevant for investors. After all, what investors are ultimately trying to do is capture the rewards of knowledge creation machines (i.e., companies).
From this perspective, it might be shocking to discover that stock indexes can move dramatically based on decidedly unknowledgable things like social media posts by the president or on rumors that can easily be disconfirmed. However, that is exactly the world in which we currently live.
I bring this up for two reasons. One is that the fundamentals of a company are absolutely critical to its long-term wealth creation. As a result, developing insight into the stream of cash flows a company is likely to produce is also knowledge – which is fit for the purpose of efficiently allocating capital to the most productive companies.
A second reason is that such analysis may not matter for long periods of time – during which stocks trade based on stories of what might be rather than what is most likely. This is the state we find markets in today – always looking for the next interesting trade, but at the expense of the longer-term journey.
As a result, the eventual outcome is quite likely to be a significant decline in stocks. Companies that engage in financial engineering to boost the stock price instead of profitably serving human purposes deprive both the shareholders and the economy of long-term value creation. These types of problems become quite evident when the financial tide rolls out.
The main point is the process of creating wealth and reliably harvesting it is essentially one of ongoing knowledge development. Stick with that and the short-term zigs and zags just don’t matter very much. Veer away from that, and the potential for permanent losses escalates.
If you have any questions about what I do or just want to learn more about the All-Terrain strategy, please reach me at [email protected]. I look forward to it!
Thanks for your support!
David Robertson, CFA
CEO and founder, Areté Asset Management
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