Tap Dancing To Work: What Passion in Markets Really Means

Don't rlly have much to add to this article other than I realised that I don't have the passion for markets lmao. So it's best that I'm now just a salesman who indexes, rather than a struggling analyst in markets. The only circle that I can't square, is the number of people I know from real life who make money from markets (i.e. dud and his numerous friends) but are not not 'passionate' in Aaron Pek's narrowly defined way. If Aaron Pek were a US-based, high-finance analyst, then he may be indoctrinated by the reality of the efficiency and competitiveness of the US markets - but Pek is Malaysian as well! I find it hard to believe that he does not know any casual 'uncles' irl who made money from the markets but are not 'passionate' in the hedge fund/ MF PE sense. I would wager that even guys like Koon Yew Yin or 冷眼 are not 'Pek-passionate'. Just a few more points that got me thinking/ pushing back on this article: - Aaron's point on the necessity of passion in valuation is basically that the DCF model is conceptually correct, but is too academic and clumsy to use for practical purposes. That's why Aaron says that investors discussing valuation on Bloomberg or CNBC tend to talk only in terms of multiples, rather than the discount rate or DCF they have in mind. And of course, Buffett only uses napkin map. (And of course, by virtue of lingering in Aaron's Whatsapp group, I know that he generally is allergic to using DCFs and textbook valuation.) I don't disagree with Aaron here, but I'm thinking about the Bradford Cornell paper I read, which of course argued that you MUST do a DCF in today's markets - modern technology makes it inexcusable to use shorthands like multiples which cannot be expected to generate alpha anymore. I now think there's a good way to bridge Bradford Cornell and Aaron Pek - which is what Pek leaves as a cliffhanger in this article himself: to 'actually learn how to tear apart the engine of valuation and put it back together with parts leftover'. This synthesis is premised on the aforementioned observation that the top investors like Buffett and Lynch only do napkin valuation: but highly experienced and incisive ones at that. So the Cornell-Pek synthesis is this: yes, lazy short-hand multiples don't work anymore. Yes, you MUST do your own absolute valuation. But a full-blown DCF is just one tool in the toolbox. 'Tearing apart the engine of valuation' could be another more advanced tool. - Aaron uses a weird example to flex his accounting and financial statement skills to find a true cigar butt in the trash can of value factor stocks. He says he 'inferred from SE's (Google says this stock is Sea Ltd) gross margin performance that they hadn't been abusing free shipping vouchers by shifting delivery fees from COGS to S&M expenses (below the GM line) — that alone gave him the confidence to feel optimistic about their trajectory, since that was by far their largest cash burn component'. Bruh but then - whatcha gonna do about it? You're a retail investor aren't ya? U gonna call up management and suggest them to shift delivery fees from COGS to S&M expenses? And the premise is pretty ridiculous to begin with. Expenses are expenses - they hit the bottom line no matter what. Shifting smtg from above the GM line to below it ... what difference does that make? Does that affect the stock price? Does the market give a shit whether smtg was shifted above and below the GM line? I believe the net income moves the stock, not the GPM. Was there a time when surprises in the GPM moved the stock non-trivially? Tell me pls. - Although I may have some icks from his pretentiousness, this guy is smart. Learned so many random things from him: > The normal accounting treatment for leases (e.g. warehouses, airplanes, etc) is to derecognize and re-recognize a lease if any changes were made to the original lease terms. > Each flagship AI company is now actively focusing on developing their respective 'application layers' or 'useful AI' in different directions. Then he drones about what each AI company, e.g. OpenAI, Claude, Gemini, Perplexity, Meta's Llama, Deepseek, are doing separately. I wouldn't know this as a passive AI consumer for rudimentary purposes (i.e. just using it as a superpowered search engine/ analyst) - all AIs feel the same to me. > The inverse correlation between 10Y yields and policy rates can be explained by dynamics in RE refinancing markets. I didn't even know there was such an inverse correlation. > Reminded me to reread Noah Smith's piece on how imports do not subtract from GDP. > 'Truly advanced' topics that he namedrops - repo plumbing, central bank swaps, derivative impact on passive fund flows. Obviously need to learn them.