Valuation

People called the market overvalued in 2012, when the S&P 500 sat around 1,400. It’s near 6,000 now. Being right that something looks expensive and being right about what to do next are completely different skills, and only one of them pays. The honest version of the valuation argument # There’s a real signal in there, so let’s state it fairly.

Most people think risk means “how much could this drop.” It doesn’t. Risk is where you stand in the queue when something fails — and almost nobody checks their place in that queue before wiring the money. The question that actually matters # When a business goes under, it doesn’t lose everyone’s money evenly. It pays people back in a strict order, top down, until the money runs out. That order is the capital stack, and it looks like this:

Price doesn’t move because of news. It moves because somebody decided they’d waited long enough and accepted a worse deal. Every chart you’ve ever looked at is a record of who ran out of patience first. The order book is where price actually happens # Forget the chart for a moment and look at the thing underneath it.