Practicing Wisdom — Issue #4
1. What I Learned This Week
Theme: “High-flying growth with shaky roots”
In full contact capitalism, the K-shaped economy continues to confound public perception and create a dual narrative. All the headline KPIs "look" good as a result of the Mag7 and the partisan politics that are driving value to accrue to the top of the stack, but America always has been and hopefully always will be best exemplified by main street. And when you go to main street, the economic surplus is obviously missing. The data shows this, and private equity's inability or unwillingness to recognize book losses in an updated interest rate environment is likely leading to a foreshadowing of underperformance. How high can the tree soar (Mag7) when its roots are rotting?
Thanks for reading! Subscribe for free to receive new posts and support my work.
The latest Howard Mark’s memo focused on price vs. value. I found it interesting that we focus entirely on price and not enough on value. Is what we pay most attention to (the S&P 500) overvalued? While that is effectively too complex to say with any degree of accuracy it is pretty not likely to be dramatically undervalued. So what do we do about that? And let's connect the dots here - are main street American fundamentals hiding a bigger trend?
In Secret CFO’s article on capital structure design we are reminded that there is no free lunch and no such thing as cheap capital - as any reasonable deal comes with a litany of trade offs that need to be watched carefully. I particularly like the idea that optionality comes at a price, which end up translating into a higher cost of capital. ‘Debt is discipline’ - or the ongoing requirement to make sure you hit your monthly debt service requirement - is something that my personality resonates with.
In Ban ChatGPT* Stancil reminds us that we are entering into a choice phase. We are quietly letting tech companies determine the default setting of America and the technologies that are rapidly changing how life works in our country and around the world. If we recall a past newsletter on the quiet tyranny of the default, we should recognize the power that lies in letting private companies experiment and then, in private boardrooms and within walls protected by the mandate of increasing shareholder value, set the new rules for human engagement. The role of government can be highly contested but it's obvious and real that governance should be a key function. The current political gridlock and general nihilism + elitism of our politics is leading to a country where we are not questioning how and where we are being herded nearly enough.
Sources Referenced
“Capital Structure Design Part 2: Do You Know What You Need?” — CFO Secrets (link)
“Ban ChatGPT*” — Benn Stancil, Substack (link)
“The Calculus of Value” - Howard Marks, The Memo (link)
“Full Contact Capitalism” — Invest Like the Best Podcast (link)
2. Key Distillations
“High flyers need healthy roots.” Surface-level gains hide foundational decay.
“Value trumps price—but perception hijacks value.” As Marks implies, the real question is “what’s it worth?”, not “what’s it cost?”
“Optionality isn’t free.” The choice of flexibility, via debt or structure, always comes with discipline and expense.
“Default = Destiny?” If we don’t contest the defaults set quietly by tech power, we accept a governance vacuum.
3. One Contrarian Viewpoint
Capitalism is humanity’s most effective engine for progress—not perfection.
Yes, capitalism has lifted billions from poverty, unleashed innovation, and rewarded ingenuity. But its brilliance lies not in preserving the powerful, but in continually testing them.
The contrarian idea? Victory should not entitle you to rewrite the rules to secure endless victory. Yet that’s increasingly the norm: tech monopolies shape platform defaults; financial incumbents optimize for lobbying over competition; political parties redraw lines to lock in power. The quiet setting of defaults—legal, algorithmic, cultural—rigs the game in ways that no longer reward the best ideas, but the best moats.
Regulation, far from being a brake on innovation, can act as a forcing function for it. Constraints sharpen creativity. Guardrails enable risk-taking. And a healthy capitalist system must regularly invite disruption, not insulate dominance.
4. One Investable Idea
A small-cap value fund focused on companies with strong cash flows, manageable leverage, and alignment with Main Street consumer dynamics feels under-appreciated. It leans into undervalued fundamentals ignored by Mag7 hype, trades optionality for durability, and benefits from a contrarian tilt if macro adjustments occur.
5. From the Archives: A Recall Highlight
“Humans don’t run on logic, any more than a horse runs on petrol.”- Rory Sutherland - zachbinkley.com
It’s a perfect echo as we evaluate markets, value, defaults, and discipline—reminding us that understanding human behavior (not logic alone) is fundamental to interpreting value dynamics.
