Speculation drives unprofitable company outperformance
The guest highlighted a market anomaly where unprofitable small-cap companies are outperforming profitable ones, signaling a reversal of fundamental investing rules.
The argument
Citing data from Apollo's chief economist, the guest noted that Russell 2000 companies with negative earnings have outperformed those with positive earnings. This was framed as evidence of a highly speculative, derivative-driven market where cash flows and profits no longer dictate valuations.
The thesis, stress-tested
✓ What validates it
- ✓A reversal in the trend where profitable Russell 2000 companies begin outperforming unprofitable ones
▸ Risks discussed
- ▸Speculative momentum can persist longer than rational analysis dictates
Hear it yourself
"And it has a net income of 125,000,000,000, which to your point, SpaceX is actually unprofitable right now to the tune of 9,000,000,000 over the past year. And yet SpaceX, I I don't know as of the close of Thursday, but definitely at some point this past week, SpaceX market value actually surpassed Microsoft's. Right. And and this is all kind of being built on euphoria and financial engineering. I mean, there were a lot of articles going into the IPO about what their plans were to get kind of index inclusion. You know, at some point, the S and P was gonna waive these rules for them and"
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