This Time Is Different, or Where Are We Standing?

I love reading and watching the market like a scientist who studies his samples with deep curiosity. The current state of things makes me think of Kenneth S. Rogoff and Carmen M. Reinhart's book “This Time Is Different — Eight Centuries of Financial Folly” as well as Howard Marks' classic “The Most Important Thing — Uncommon Sense for the Thoughtful Investor.”

Everybody knows what happened in the past, and nobody knows what the future brings, but we can analyze where we are standing right now and recall the uncomfortable lessons from the crises bygone. So I put on my lab coat and tried to understand what was going on out there, attempting not to burn my finger on the hot plate of the global risk heat map, while keeping Rogoff's and Marks' insights in the background.

With the help of AI (Is it a juicy steak grilled on the hot plate of investing or is it overcooked beyond saving?) I created the following overview, which I would like to share so that nobody can say, “This time it's different.”

Risk is defined as “a situation involving subjecting someone or something of value to danger, harm, or loss”. Interestingly, risk by definition and from the investor's perspective does not imply reward or overly profitable gain. But as we learned at university, the higher the risk, the higher the return level should be, otherwise you're making very bad investment decisions.

A warning sign for me is the case of MicroStrategy founded by Michael J. Saylor. I invite you to put on your lab coats and goggles and, sticking to the hot plate metaphor, join me in examining the ingredients:

1. An all-in investor/player/actor/visionary who put everything on red. To do so, he borrowed money under cheap (and some would say insane) conditions from the retail masses.

2. His main ingredient is a now widely accepted underlying asset that, even though you could find 20 positive arguments for it, has no intrinsic value nor is it creating any value from the money invested into it besides speculation (opinion, please don't throw stones at me).

3. The whole soup has a market cap of around 88.2 billion US dollars (you could get BMW and Deutsche Bank for that), a P/E ratio of minus 170!, a free cash flow (FCF) of minus 8.5%!, a return on invested capital of minus 16%! — meaning every dollar you trustfully hand over as an investor is turned into 84 cents business-wise — and a five-year CAGR of -0.73%.

   … Yet it has a very active “Guru” and, buckle up and hold your horses, a 5-year 2,380% stock market growth!

If tomorrow nobody wants to pay, let's say $50,000 or $30,000 for Bitcoin anymore, the whole structure collapses like a house of cards, and that could be the next dark red cluster on the global risk heat map. The “next big thing” turns into dust. I don’t want to be the doomsday prophet, but certain aspects of the market are becoming increasingly unjustifiable and irrational. Looking into the rearview mirror from the future, I doubt the sentiment that 'this time is different' would hold any weight.

From a scientific standpoint, the fascinating thing is how much money you can earn with a momentum hot stock in the meantime — just make sure you don't miss the exit.