Value investing has been one of the greatest investment strategies of all time. We can summarize value investing in a single statement: “money flows from the impatient to the patient.” There are many role models of value investing, each with different strategies. Some focus more on the P/E ratio, while others focus on the P/B ratio. However, all of them believe the market is inefficient and that a company is worth more than the current price assigned by the market. I am also a big fan of value investing, yet nowadays we are being called “stupid” in the age of AI.
People notice that a startup, without even proving consistent revenue or having enough advantage over other companies that already receive tens of billions, is still highly valued. Some IPO-listed companies like Minimax or Z.AI are even more extreme, showing 300 million dollars in revenue while having over 20 billion dollars in market capitalization. If you bought these companies when they were listed, you would have already doubled your money. However, this makes me feel even more uncomfortable.
The market should be a mechanism that allows investors to put in one dollar and generate more than one dollar in market value. But now, people think that AI growth will work and that it can meet market expectations. It seems, once again, that people are becoming impatient and saying value investing is out of scope. This reminds me of a book about aircraft.
The airplane is one of humanity’s greatest inventions. Imagine what would have happened to international business if it did not exist. However, over ninety percent of aircraft companies have gone bankrupt since the late 1980s. Isn’t that similar to today’s situation?
AI, LLMs, and agent applications are useful and life-changing, but I doubt how many companies can survive after these hype days. If they cannot, why buy these companies now instead of waiting for the winner to emerge? Of course, you might say, “What if I bet correctly and buy the right company?” But what if your win rate is only ten percent?
I am optimistic about AI increasing all kinds of productivity, but I am very pessimistic about the current market. I will not short the market because that is not what a value investor does, but I will start reducing my exposure from now on.