My granny woke up miraculously sharp in both mind and limb this morning. Having been bedridden for decades, she keenly ran the 10k to my apartment. ‘Nana’, apparently also sharper in tongue, remarked on my receding hairline in the doorway before proceeding:
“Have growth stocks been subjected to a reverse split?”
She asked this smirkly without expecting a response, wanting to convey that she had been an investment-dabbler herself. With amused contempt she continued, looking devilish brainy, dripping granny sweat on my poor couch:
“Small things, apparent only to the sharp eye, suggest fishy markets. Explain said fishiness dear.”
Uneasiness struck me. My inheritance had likely been dwindled by “value” investments. But I love Nana, and would it not have been for my feeling suppressive culture I might even have told her as much. In a fit of insecurity I tried to freeze Nana with a look to get some time to think. Except Nana went full look-proof. Her teapot was unstirrable.
Nana's 20% ROE portfolio needed tweaking, fine. But I knew that I wouldn’t have to convince her, or myself, that current markets were all that different than her last lucid one decades ago. I managed to puke out:
“ 'Cashflow is cashflow' but the balance sheet & income statement makeup has changed. Subscription software businesses don't have to materially invest in hard assets to generate growth. Right? But sales & marketing, actually partly investments, are being expensed on the income statement in the year they are incurred."
Contradictory impulses created hardly perceptible waves in the deeper layers of Nana's forehead wrinkles. As a result I resumed a bit too unsparingly:
“Nana, honey, you see the ‘Rule of 40’ is the big swinger now. It assesses the balance between growth and profitability, and equals revenue growth + a profit margin. And yep, you're right, asset efficiency isn't explicitly rewarded or, in the case of companies trying to disguise as software firms, punished!”
Nana nodded and I think she quoted some French dude’s “sometimes the more measurable drives out the most important” under her, bad, undoubtedly hereditary, breath. Her brain jumped into ludicrous mode, as she could not commit such spiritual abortion as to stop alpha fetishizing. My grandpa hadn't been much of an alpha so investing had always been her alpha fix substitute (save for a waiter or three).
Not having been slowly boiled into current markets, she immediately scanned her faithful 'Value Line' for characteristics hinting of 'underlying ROICs' diverging from their fellow 'Rule of 40' peers:
“Institutional investors are eager to manage money from human right violating country sovereign wealth funds, or invest in companies that use them as capital suppliers. Yet the institutional investors happily adopt ESG ‘marketing policies’ in other, less important, supply chain decisions.”
Such behavior, she explained, stems from humans not having full access to their thinking. We evolved to deceive ourselves to better hide cues when tricking others. She proudly touted that this was one of the reasons why formulas, like the 'Rule of 40', was ripe for alpha squeezing. People fool themselves.
“I’ve had quite a number of doctor encounters dear. Whenever they follow a checklist, or for our sake a formula, they engage in less open-ended questioning.”
Nana wanted a ride home already after her first nvestment as she felt a relapse into senility and her 'Big Diaper' industry conspiracy was imminent. Big Diaper is apparently lobbying congress to put laxatives in tap water of care homes. Ayahuasca adult diapers are also, allegedly, a clear growth play for her demographic, why Big Diaper’s "infant sibling", Big Pharma, researches these psychedelics as potential “Alzheimer treatments“.
But I digress slightly. Nana's last lucid wish was for me to develop a game with Mr. Stonks. The game would help steer her senile subconscious.
She knew her senile adjusted performance wouldn't amount to much. But at least while trading she could dodge the, mere shoulder motion laughing, oldsters in the common room.
This game is for you Nana! https://games.ramjam.co.uk/gamestonk/