With red flags flying, active management gets interesting again

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Anyone who has been following my content for a while will know that I like to focus on data rather than sentiment or emotion when making investment decisions. Preferably, I also like to consider more ...

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Preferably, I also like to consider more ...</p>\n\n<a href=\"https://www.livewiremarkets.com/wires/with-red-flags-flying-active-management-gets-interesting-again\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2860962120.EUR","symbol_name":"CPR INVEST - ARTIFICIAL INTELLIGENCE \"A2\" (EUR) ACC A","start_time":0,"source_url":"https://www.livewiremarkets.com/wires/with-red-flags-flying-active-management-gets-interesting-again","article_id":"2579954179","we_media_id":null,"thumbnails":[],"rights":{"source":"livewire_stock","url":"https://www.livewiremarkets.com/wires/with-red-flags-flying-active-management-gets-interesting-again","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2579954179","pubTimestamp":1761681617,"columns":[],"sourceInfo":{"source_id":"livewire_stock","name":"Livewire Markets"},"weMediaInfo":null,"summary":"Anyone who has been following my content for a while will know that I like to focus on data rather than sentiment or emotion when making investment decisions. Preferably, I also like to consider more than a single data point.I penned a wire a few weeks backthat focused primarily on macro forecasts, one of the criticisms of which was that such forecasts could hardlybe considered data. Point taken.So, I decided to go a little harder and reach out to a fund manager who I know has exceptional data and isn’t afraid to share it – Plato Investment Management’s Dr David Allen.The questions I posed to Allen and his responses  are below.Let’s not sugar-coat it - U.S. market valuations are stretched.If anyone tells you otherwise, politely excuse yourself and run a mile.The chart below shows the Shiller Price-Earnings Ratio  for the S&P 500 since 1880. At a current reading of 39.5, the U.S. market now sits in the top three percentiles of expensiveness since the Second Industrial Revolution.","collect":0,"end_time":0,"defaultTopTitle":"livewiremarkets.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU2860962120.EUR":"CPR INVEST - ARTIFICIAL INTELLIGENCE \"A2\" (EUR) ACC A","SG9999011175.SGD":"Nikko AM Global Dividend Equity Dis SGD-H","SPXU":"三倍做空标普500ETF-ProShares","LU2592432038.USD":"WELLINGTON MULTI-ASSET HIGH INCOME \"A\" (USD) ACC","NVDA":"英伟达","SH":"做空标普500-Proshares","LU0187121727.USD":"FIDELITY SUSTAINABLE US EQUITY \"A\" (USD) INC","NVDS":"1.5倍做空NVDA ETF-Tradr","CAPE":"Shiller CAPE U.S. Equities ETF","SSO":"2倍做多标普500ETF-ProShares","VOO":"Vanguard标普500ETF",".SPX":"S&P 500 Index","OEX":"标普100","IVV":"标普500ETF-iShares","NVDU":"2倍做多NVDA ETF-Direxion","IE00BDCRKT87.USD":"PINEBRIDGE GLOBAL DYNAMIC ASSET ALLOCATION \"ADC\" (USD) INC","LU1989772840.SGD":"CPR Invest - Climate Action A2 Acc SGD-H","SPY":"标普500ETF","SNVD.UK":"LS -1X NVIDIA","BK4550":"红杉资本持仓","LU1868837300.USD":"CT (LUX) I AMERICAN FUND \"9\" (USD) ACC","NVDX":"2倍做多NVDA ETF-T-Rex","LU2236285917.USD":"ALLIANZ GLOBAL INCOME \"AMG\" (USD) INC","LU0353189680.USD":"富国美国全盘成长基金Cl A Acc","NVD":"2倍做空NVDA ETF-GraniteShares","LU2505996681.GBP":"WELLINGTON MULTI-ASSET HIGH INCOME \"AM4H\" (GBPHDG) INC","NVDY":"NVDA期权收益策略ETF-YieldMax","LU0949170772.SGD":"Blackrock Global Equity Income A6 SGD-H","NVD2.UK":"2X NVIDIA ETP","LU1914381329.SGD":"Allianz Best Styles Global Equity Cl ET Acc H2-SGD","SDS":"两倍做空标普500 ETF-ProShares","LU0444971666.USD":"天利全球科技基金","NVD3.UK":"LS 3X NVIDIA","BK4097":"系统软件","NVDD":"1倍做空NVDA ETF-Direxion","LU2543165471.USD":"E FUND (HK) GLOBAL QUALITY GROWTH \"A\" (USD) ACC","3NVD.UK":"LS 3X NVIDIA","LU2456880835.USD":"ALLIANZ GLOBAL INCOME \"AT\" (USD) ACC","NVDS.UK":"LS -1X NVIDIA","UPRO":"三倍做多标普500ETF-ProShares","NVIW.SI":"NVDA 3xLongSG261006","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1  Acc SGD-H","OEF":"标普100指数ETF-iShares","LU0256863811.USD":"ALLIANZ US EQUITY \"A\" INC","2NVD.UK":"2X NVIDIA ETP","LU0511384066.AUD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (AUDHDG) ACC"},"translate_title":"红旗飘扬，主动管理再次变得有趣","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UPRO":0.6,"SPXU":0.6,"CAPE":1,"OEX":0.6,"NVDA":0.9,"NVIW.SI":0.6,".SPX":0.75,"NVD2.UK":0.6,"NVDY":0.6,"2NVD.UK":0.6,"SH":0.6,"IVV":0.6,"MESmain":0.6,"NVDX":0.6,"OEF":0.6,"SDS":0.6,"SPY":0.75,"SNVD.UK":0.6,"NVD3.UK":0.6,"NVD":0.6,"NVDD":0.6,"NVDS.UK":0.6,"ESmain":0.6,"NVDU":0.6,"3NVD.UK":0.6,"SSO":0.6,"NVDS":0.6,"VOO":0.75},"content_text":"Anyone who has been following my content for a while will know that I like to focus on data rather than sentiment or emotion when making investment decisions. Preferably, I also like to consider more than a single data point.\nI penned a wire a few weeks back that focused primarily on macro forecasts, one of the criticisms of which was that such forecasts could hardly be considered data. Point taken. \nSo, I decided to go a little harder and reach out to a fund manager who I know has exceptional data and isn’t afraid to share it – Plato Investment Management’s Dr David Allen.  \nThe questions I posed to Allen and his responses (and data points) are below.\n1.\tWhat is your current thinking on share market valuations?\nLet’s not sugar-coat it - U.S. market valuations are stretched.\nIf anyone tells you otherwise, politely excuse yourself and run a mile.\nThe chart below shows the Shiller Price-Earnings Ratio (CAPE) for the S&P 500 since 1880. At a current reading of 39.5, the U.S. market now sits in the top three percentiles of expensiveness since the Second Industrial Revolution.\n\n\n\n\n\n\n\n\n\nSource: Data and chart courtesy of Robert Shiller\nBut headline valuation ratios reduce the market to a single number and mask the complexity underneath. \nYes, there are some eye-watering extremes - NVIDIA alone is now worth more than the entire UK stock market - but the more interesting story lies in the dispersion.\nTesla trades at a P/E of 234x, while Ford trades at 8x. Put differently:\n\nOne dollar invested in Tesla buys you just 0.4 cents of earnings.\nOne dollar in Ford buys you 12.5 cents.\n\nElon may one day deliver humanoid robots and fully autonomous driving, but for now, the market is rewarding dreamers over doers.\nThis record dispersion in valuations - mirrored by record dispersion in stock returns - is both a warning and an opportunity. \nFor investors like us, that’s fertile ground. At Plato, our Global Alpha portfolio trades on a P/E of 17 (as we are short many very expensive companies), versus 31.5 for the S&P 500 and 35 for the NASDAQ.\nWhen valuation gaps and return dispersion reach these levels, active management starts to matter again.\n\n\n\n\n\n\n\n\n\nSource: GMO, y-axis reversed\n\n\n\n\n\n\n\n\n\nSource: Stock return dispersion is calculated as the CBOE option implied dispersion for the S&P 500\n2.\tAre you seeing higher levels of red flags starting to appear in your scans?\nWe are definitely seeing more red flags appear across our models - particularly in the emerging AI sector.\nPlato uses several forensic accounting tools developed by academics and fraud investigators. One technique draws on Benford’s Law, which predicts a natural pattern in the leading digits of accounting numbers. If a company’s accounts deviate from Benford’s distribution, it may be a sign of manipulation.\nEvery quarter, we run this analysis across 20,000 of the world’s largest companies, scanning every line item of their accounts over three years. When the patterns diverge, our antennas go up.\nAnd lately, they’ve been lighting up.\n\n\n\n\n\n\n\n\n\nSource: Stock return dispersion is calculated as the CBOE option implied dispersion for the S&P 500\n3.\tWhat are the general red flags you look for in a potential short candidate?\nPlato’s 150 Red Flags are categorised under Forensic Accounting, Governance, Alignment, and Financial Distress. \nA company that triggers eight or more is a strong candidate for shorting - our research shows such companies underperform the market by 20% over the next year.\n\n\n\n\n\n\n\n\n\nSource: Plato Investment Management\nCommon warning signs include:\n\nNegative operating cash flow or, worse, pre-revenue.\nAggressive revenue recognition or delayed expense recognition.\nWeak governance or insider misalignment.\n\nPre-revenue companies in particular play to investors’ lottery bias - the belief that a one-in-a-hundred-thousand shot will become the next NVIDIA.\nMost, of course, don’t.\nIt all reminds me of a scene in the HBO series Silicon Valley when the eccentric billionaire Russ Hanneman responds to one of the start-up team members’ proposals to generate revenue.\n“No, no, no, no. Why would you go after revenue? … if you show revenue people will ask how much, and it will never be enough … If you have no revenue, you can say you are pre-revenue, you’re a potential pure play… it’s not about how much you earn, it’s about how much you’re worth, and who is worth the most? Companies that lose money.”\nA company that is pre-revenue has no multiple to justify because you cannot even calculate one… \n4.\tAre there any specific companies or areas of the market where you are noticing red flags - what are they?\nWe’re also watching for circular financing loops - structures that create the illusion of growth. The NVIDIA → OpenAI → Oracle → NVIDIA loop is the most famous example: NVIDIA invests in OpenAI, which employs Oracle’s data centres, while Oracle uses the proceeds to buy more NVIDIA hardware.\nMoney moves, valuations rise - but little new value is created. These feedback loops are starting to multiply across the AI ecosystem. Some commentators call it “full-Ponzi.”\nThat’s probably too harsh, but any self-referential funding cycle deserves scrutiny.\nPrivate markets are even frothier. The ten largest loss-making AI startups now carry a combined valuation north of US$1 trillion. Every idea is being funded — and, eventually, many will be found wanting. But from that creative destruction, genuine era-defining technologies will emerge.\n5.\tHow are Plato and your Global Alpha Fund managing the conditions?\nIt would be disingenuous not to say this plays to our strengths.\nIn markets this distorted, long/short strategies are uniquely positioned to profit from the dislocations.\nSince its inception, Plato Global Alpha has generated 12.5% p.a. of excess return vs the MSCI World, with almost half of that alpha coming from the short book.\nBy contrast, passive investors are automatically overweight the most expensive stocks - by design.\nWhen markets stretch this far, dispersion and deception are the active manager's best friends.\n\n\n\nManaged Fund\nPlato Global Alpha Fund\nGlobal Shares\n\n\nView\n\n\n\n\n\n\n\nNever miss an update\n\n    Enjoy this wire? Hit the ‘like’ button to let us know. \n    Stay up to date with my current content by \n    following me below and you’ll be notified every time I post a wire","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.35.12","shortVersion":"4.35.12","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2579954179","isCrawlerRequest":true}