As of Friday morning, the S&P 500 SPX 0.29% is less than 1% off its record closing high. This comes after Nvidia NVDA -3.14% reported results and made predictions. This week was the peak of U.S. company earnings season.
There are still a lot of unknowns that could make investors less excited. For example, President-elect Trump’s choice for Treasury secretary and December’s Federal Reserve policy meeting—where another rate cut is not likely—are two examples.
But even with those problems, a lot of traders and experts seem to think that stocks will have their usual good run until the end of the year.
Owen Lamont, senior vice president and portfolio manager at Acadian, on the other hand, is much more wary. He also came up with the Saylor-Buffett Ratio as a useful way to show what he thinks is the market’s current over-exuberance.
“How will we know when there is a bull market?” Lamont says, “One way to look at it is to compare the status of two men: Warren Buffett of Berkshire Hathaway BRK.B 1.10% and Michael Saylor of MicroStrategy MSTR 9.58%.”
These days, Saylor has been in a lot of news because his company bet billions of dollars on bitcoin BTCUSD 1.09%. This bet has caused the MicroStrategy share price to rise 664% in the last year.
Lamont says that Buffett’s usual financial good traits, like wanting fair prices, strong balance sheets, and steady returns, are seen as out-of-style during times of excessive speculation.
This leads to news stories like the ones below when stock prices are at their highest.
Lamont says this means that saying Buffett “lost his touch” might mean the market has gone up too much.
Lamont says, “On the other end of the spectrum is Saylor, a sort of bizarro-Buffett.” This is because MicroStrategy, like Berkshire, is different for a publicly traded company in that a lot of its value comes from the other assets it owns. It’s just that MicroStrategy holds bitcoin instead of companies, and Saylor is a huge fan of bitcoin.
They are also very different in other ways. Buffett supports simple accounting, while Saylor’s use of the word “yield” to describe its bitcoin purchases is an example of GOAP, which stands for “Generally Orwellian Accounting Principles.”
Buffett wants to buy back shares, but Saylor is selling stock by the billion-dollar piece, Lamont says.
If the reader is still not sure how the fund manager feels about the two clients, here is a full summary of his personality: “Buffett stands for old-fashioned business.” Saylor stands for ideas of the future. Buffett is a good guy. Saylor is secretly magical. Buffett likes old things. Saylor brings the new. Value and mean reversion are what Buffett does. Saylor is speed and growth that goes on and on. For order, logic, and clarity, Buffett is Apollo. Saylor is Dionysus, who stands for freedom, creativity, and the infinite.
Oh, no! Lamont came up with the Saylor-Buffett Ratio to show his point. It is the total cumulative return on MicroStrategy shares split by the total cumulative return on Berkshire Hathaway, with a base of 1.
stock craziness of early 2021, and in late October this year was lurching upwards once more. In fact the chart misses much of the sharp rises in MSTR over the last few weeks, and so the ratio will be notably higher than the 1.96 showed. And of course, those peaks also correspond with “Buffett has lost his touch” syndrome.
Lamont accepts that his Saylor-Buffett ratio is not a “scientifically valid measure derived from first principles,” but “it sure looks like an accurate measure of speculative excess.”
“The market is getting frothy,” he says.
