Latest / How Canadian Markets Work / Episode 77: Value Ratios (The Cyclical Trap)

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Episode 77: Value Ratios (The Cyclical Trap) · How Canadian Markets Work

0:00
If you walk into a store and you see a brand
0:03
new high -end television on sale for like an
0:07
80 % discount, you don't call it a trap. No,
0:09
you call it a bargain. Right. You call it a bargain.
0:12
But if you look at your portfolio and see a stock
0:15
trading at an 80 % discount to what it used to
0:17
be, well, you might be walking into one of the
0:19
most dangerous, wealth -destroying traps in the
0:21
entire financial market. Oh, absolutely. So welcome
0:24
to this custom -tailored deep dive. Today, we're
0:28
taking the corporate performance ratios we discussed
0:31
last time. Right, the DuPont decomposition stuff.
0:34
Exactly. Remember when we tore apart the DuPont
0:37
decomposition to see how a business actually
0:39
runs? Well, today we are taking those exact same
0:42
operations and finding out how the stock market
0:45
actually values them. Which is really the logical
0:48
next step, I mean, if you think about it. We
0:50
figured out how to tell if a company is generating
0:52
cash or, you know, maintaining healthy margins.
0:55
But knowing a company is good at making money
0:57
is only half the battle. You have to know if
1:00
the price the market is asking you to pay for
1:01
those margins is actually a fair deal. because
1:04
a low price in the stock market is, it's rarely
1:08
a gift to the retail investor, right? Yeah, it's
1:10
usually a warning message. So our mission today
1:13
is to decode what financial professionals call
1:16
value ratios. I mean, if you watch financial
1:19
television or read investing blogs, you hear
1:21
terms like cheap and expensive thrown around
1:24
constantly. Constantly. Everyone's got an opinion.
1:27
Right. And analysts point to a handful of famous
1:29
metrics to justify those labels. So our goal
1:33
is to break down what those numbers are actually
1:35
telling you, why they can be... frankly incredibly
1:39
deceptive, and how to protect yourself from some
1:42
very clever valuation traps. Especially if you're
1:44
navigating the Canadian market, the structure
1:47
of the economy up there creates some very unique
1:50
pitfalls. Yeah, exactly. So if you've ever looked
1:52
at a stock and thought, wow, this looks like
1:54
a bargain, we need to give you the tools to figure
1:57
out what terrible future event the broader market
1:59
is secretly anticipating that, well, maybe you
2:02
aren't seeing yet. It's all about what the market
2:04
expects versus what you see. Right, so let's
2:06
start with the undisputed heavyweight champion
2:08
of valuation metrics, the P -E ratio, or price
2:12
to earnings. I mean, it's the single most quoted
2:15
ratio in investing. Oh, by far. Functionally,
2:18
it's just measuring how many dollars you have
2:20
to pay out of your pocket today to buy one single
2:22
dollar of that company's annual earnings. Yeah,
2:25
the math is very straightforward. If a company
2:28
has a P .E. of 15, you are handing over $15 for
2:32
every dollar the company earns in profit. OK.
2:35
You're essentially asking the market, hey, how
2:37
many years of current earnings would it take
2:39
to pay me back my initial investment? But I want
2:42
to push back on the inherent danger of this,
2:45
going back to my television analogy. OK, let's
2:46
hear it. If I buy that TV at an 80 % discount,
2:50
I get to take it home, plug it in, and watch
2:52
movies. Like the fundamental utility of the television
2:55
doesn't change just because I paid less for it.
2:57
So if I find a stock trading at a remarkably
3:00
low PE, let's say a PE of four, meaning I only
3:04
pay $4 for a dollar of earnings, why am I being
3:07
warned away from a discount? Isn't a dollar of
3:09
earnings still just a dollar of earnings? That
3:11
is a great question. And that television analogy
3:13
highlights the exact friction point between,
3:16
well, consumer logic and market logic. OK, how
3:19
so? When you buy a physical product on sale,
3:22
the product is a finished good, right? Its value
3:25
is locked in. Yeah, it's a TV. It's not going
3:27
to change into a toaster. Exactly. But in the
3:30
stock market, the P -E ratio combines a future
3:33
expectation with a historical fact. The price
3:37
you pay today contains all the millions of participants
3:40
in the market guessing about what will happen
3:42
tomorrow. Right. The forward -looking part. But
3:44
the earnings figure, you're looking at the denominator
3:47
in that equation. Well, that is anchored in the
3:50
past. It already happened. So the ratio is inherently
3:52
conflicted. It's kind of mashing together what
3:54
people think will happen with what already did
3:57
happen. Which means we have to clearly distinguish
3:59
between the two types of P -E ratios you see
4:01
on your screening tools. OK. There is the trailing
4:04
P -E. That uses the earnings from the last 12
4:07
months. It's an audited documented fact, right?
4:11
Then there is the forward PE which uses analyst
4:14
estimates for the next 12 months and that's a
4:16
forecast It's a forecast and we all know how
4:18
reliable economic forecasts tend to be. I mean
4:21
they are frequently sometimes spectacularly wrong
4:25
Yeah, I've seen that first hand and this friction
4:28
between looking backward at facts and looking
4:30
forward at forecasts It creates what might be
4:35
the single most dangerous trap for anyone listening
4:37
who trades Canadian stocks. Oh, the cyclical
4:40
value trap. Yes. Yeah. Canada's market is heavily
4:44
weighted toward resource sectors. You know, oil,
4:46
gas, mining, timber. Right. These are massively
4:49
cyclical industries. Their fortunes don't grow
4:52
in a straight, predictable line like, say, a
4:55
software subscription business. No, they bounce
4:57
around. Exactly. They rise and fall wildly depending
5:00
on global commodity prices, and those prices
5:03
are entirely outside the company's control. So
5:05
let's walk through the mechanics of how this
5:07
trap actually springs on an unsuspecting investor.
5:11
Imagine a Canadian oil producer. We are at the
5:13
absolute peak of a global commodity boom. Oil
5:16
is trading at, I don't know, $120 a barrel. Well,
5:20
at that price, the oil producer is making money
5:22
hand over fist. I mean, their profit margins
5:25
are gargantuan. Right. So when they report their
5:28
trailing 12 -month earnings, that number is record
5:31
shattering. Now, think about the math of the
5:34
P -E ratio, price divided by earnings. The earnings,
5:38
the denominator has swelled to a massive size.
5:41
So mathematically, that drives the overall ratio
5:44
down. Exactly. So the stock might be trading
5:46
at a P -E of just like 4x. No. And to the untrained
5:50
eye scrolling through a stock screener, this
5:53
looks like the ultimate bargain. It looks like
5:56
the television on an 80 % discount. But the institutional
5:59
market, however, is looking forward. Right. Large
6:01
institutional investors know that $120 oil inevitably
6:04
leads to overproduction, which, you know, eventually
6:07
crashes the price. They are already pricing in
6:08
the crash. Wow. OK. Yeah. So because they refuse
6:11
to bid the stock price up any higher, the share
6:13
price stays relatively flat while those trailing
6:16
earnings look massive. That artificial combination
6:19
creates that microscopic 4XPE. Then the cycle
6:22
turns. The inevitable happens. Global oil prices
6:25
correct back down to let's say $60 a barrel.
6:30
And the producer's earnings plummet by 75%. So
6:33
let's run that new reality through the math.
6:35
If the earnings drop by 75 % and the share price
6:38
hasn't even moved yet, your denominator just
6:40
shrank drastically. Right. So that exact same
6:43
share price suddenly represents a P .E. of 16x.
6:47
Wait, really? It went from looking like the cheapest
6:49
stock on the market to an expensive one overnight
6:51
and the stock price didn't even go up. It didn't
6:53
move an inch. Then the final shoe drops. Because
6:56
the P .E. is now 16x on a struggling oil company,
7:00
investors dump the stock to bring the valuation
7:02
back in line with historical norms. Ah, so you
7:05
lose a massive chunk of your capital on a stock
7:07
that supposedly looked like a deep value bargain.
7:10
Exactly. The critical mechanism to understand
7:13
here is that the absolute lowest P .E. for a
7:15
cyclical company almost always occurs at the
7:18
exact top of their business cycle. It's the moment
7:20
of maximum danger. So buying cheap cyclicals?
7:23
based on a trailing PE is walking into a trap.
7:27
The lowest multiple arrives right before the
7:29
crash because the market is screaming, hey, we
7:32
do not believe these earnings are sustainable.
7:34
A low multiple is a starting question. It is
7:37
never an ending conclusion. That's a great way
7:39
to put it. So we've established that trailing
7:41
earnings can trick us because of business cycles.
7:46
But earnings can also be manipulated just by
7:48
how a company counts its own shares, right? Oh,
7:51
absolutely. So let's bring back our running example
7:54
from the previous deep dive. Meridian Toolworks,
7:57
our fictional Canadian manufacturer. Okay, let's
7:59
look at Meridian. Let's do some back of the napkin
8:01
math and see how easily this value ratio shifts,
8:04
depending on which footnotes you read. All right,
8:06
let's say Meridian shares are currently trading
8:08
at $22 a piece. And looking at their most recent
8:11
filings, they have 10 million shares outstanding.
8:15
OK, so $22 times 10 million shares gives us a
8:18
market capitalization of $220 million. That's
8:21
the price tag the market has placed on the equity
8:23
of the entire company. Right, now we need their
8:25
earnings to calculate our multiple. So looking
8:28
at their income statement, Meridian reported
8:30
a basic earnings per share, or basic EPS, of
8:33
$1 .80. So, roughly speaking, if I take the $22
8:38
share price and divide it by the $1 .80 EPS,
8:41
I get a P -E ratio of about 12 .2x. Yep. For
8:45
an established manufacturer, a multiple of 12...
8:49
looks incredibly cheap. I'd be tempted to buy
8:51
that right now. And it does look appealing. Until
8:53
you dig into the footnotes of that financial
8:55
statement, you are looking at the basic EPS.
8:57
But they also reported a diluted EPS. Oh, right.
9:00
Basic versus diluted. Yeah. Basic EPS only counts
9:03
the 10 million shares that currently exist today.
9:06
It assumes the structure of the company will
9:07
never change. Diluted EPS, on the other hand,
9:10
asks a much more pessimistic question. Cheers.
9:13
What happens if every single person who has the
9:15
right to create a new share actually does it?
9:18
We're talking about executive stock options or
9:22
Convertible bonds or warrants like financial
9:25
instruments that give employees or early investors
9:28
the right to just print new shares out of thin
9:30
air Exactly. Think of the company's total earnings
9:33
as a pizza. OK. I like pizza. Right now, that
9:36
pizza is sliced into 10 million pieces. But management
9:39
holds options that let them print millions of
9:41
new shares if the stock hits a certain price.
9:43
Right. If they exercise those options, the size
9:46
of the pizza does not change. But it suddenly
9:48
gets sliced into 12 or 13 million pieces. So
9:51
your individual slice, your earnings per share
9:53
gets smaller. Wow. OK. I'm looking at the diluted
9:56
numbers now. For Meridian, if you account for
9:59
all that potential their earnings per share drops
10:02
from $1 .80 down to just $1 .57. So run the multiple
10:07
on that new reality. Okay, $22 divided by 1 .57.
10:10
The PE jumps from 12 .2 to 14 .1x. And the scary
10:15
part about this mechanism is that automated stock
10:18
screeners and financial news tickers, they will
10:20
frequently quote the flattering basic number.
10:22
Because it makes the stock look cheaper and more
10:24
attractive. Exactly. But the diluted number is
10:27
the honest truth about your slice of the pie.
10:29
It tells you what you are actually buying once
10:31
all the pending claims on the company are settled
10:33
and new shares are printed. That is wild. So
10:36
if earnings are this easy to distort between
10:39
cyclical peaks and sheer dilution, shouldn't
10:43
we be looking at what the company actually owns?
10:46
Like what happens when we stop valuing the income
10:49
statement and try to value the balance sheet
10:51
instead? You're talking about price to book.
10:53
Right, let's talk about the PV ratio. So price
10:55
to book compares the market cap of the company
10:57
to its book equity. Book equity is essentially
11:00
the accounting net worth of the business. Okay,
11:03
break that down for us. Sure. If you took every
11:05
asset the company owns, sold it all for exactly
11:08
what the accountants say it is worth, and use
11:10
that cash to pay off every single liability and
11:13
debt, whatever cash is left over in a pile on
11:15
the floor, that is the book equity. You know,
11:18
I like to visualize Christa Book like buying
11:20
a used car. If you evaluate a used car strictly
11:23
based on the scrap metal value of its parts,
11:26
you know, the doors, the engine block, the tires,
11:28
that scrap value is the book value. But obviously,
11:31
a running, driving car that actually gets you
11:33
to work is worth more than a pile of scrap metal
11:36
on a junkier scale. So that's why successful
11:39
companies usually trade at a premium to their
11:41
book value. Extending that used car metaphor
11:43
is the perfect way to understand both the utility
11:46
and the danger of the price -to -book ratio.
11:50
Let's say that used car used to be owned by Elvis
11:52
Presley. Oh. You are going to pay a massive premium
11:56
for that car at auction far beyond the value
11:59
of the scrap metal. Right. Because of the history.
12:02
The brand appeal. Yeah. And in corporate accounting,
12:05
that Elvis premium is called goodwill. It is
12:08
an intangible asset. Goodwill. Yeah. When one
12:11
company buys another company for more than its
12:13
physical assets are worth, usually because they
12:16
are buying a great brand name or a loyal customer
12:18
base, the accountants have to balance the books.
12:21
So they create a line item called goodwill to
12:24
account for that premium. OK. So it makes the
12:26
company look more valuable on paper. Right. But
12:28
if people suddenly stop caring about Elvis or
12:30
if that brand loses its appeal, that goodwill
12:33
premium vanishes overnight. Even though the physical
12:36
metal of the car hasn't changed at all. Exactly.
12:39
Wow. Let's apply this to Meridian Tool Works.
12:42
Yeah. Doing some back of the napkin math again,
12:45
we know the market cap is roughly $220 million.
12:49
And looking at their balance sheet, their total
12:51
equity is $75 million. OK. So $220 million divided
12:56
by $75 million gives us a price to book ratio
12:59
of roughly 3x. So the market is valuing the company
13:03
at three times its accounting net worth which
13:05
honestly seems reasonable for a profitable manufacturer
13:08
But you have to look at what that 75 million
13:11
dollars of equity is actually made of under the
13:14
hood, right? Meridian has been acquiring smaller
13:16
competitors for years Out of that $75 million
13:19
equity, $35 million is made up of intangibles
13:22
and goodwill. That's the Elvis premium. It's
13:24
an accounting plug. It isn't a factory they can
13:26
sell. It is an inventory they can liquidate.
13:28
No, and if the economy turns or if those acquisitions
13:31
don't pan out, that $35 million of goodwill can
13:34
be written down to zero by the accountants in
13:36
an instant. The equity evaporates without a single
13:39
dollar of actual cash leaving the company's bank
13:41
account. To find the real safety net, you have
13:44
to strip out the intangibles. You have to find
13:46
the tangible book value. OK, so let's do that.
13:49
If we take the $75 million in total equity and
13:51
subtract the $35 million in goodwill, Meridian's
13:55
tangible book value is only $40 million. Right.
13:59
So recalculating. $220 million market cap divided
14:04
by just $40 million in tangible equity. Suddenly,
14:07
they are trading at five and a half times tangible
14:09
book. The safety net is much further down than
14:12
the headline ratio suggested. And this is why
14:14
context matters so much for these ratios. You
14:16
know, price the book is incredibly useful for
14:18
financial institutions like the big Canadian
14:20
banks. Why is that? Well, a bank's assets are
14:23
mostly financial instruments, loans, mortgages,
14:25
treasury bills. These are carried on the balance
14:27
sheet at values very close to their actual tangible
14:30
cash worth. The scrap metal is literally made
14:33
of cash. Ah. OK. But if I try to use price to
14:36
book on an asset light software company, it would
14:39
be useless, right? I mean, a tech firm might
14:41
have brilliant proprietary code, massive recurring
14:44
revenue, and almost no physical assets besides
14:46
some laptops. Its book value will be tiny. So
14:49
its price to book ratio will look astronomically
14:52
high, tricking you into thinking it's wildly
14:54
expensive when it might be priced perfectly fine
14:57
based on its cash flow. The tool has to match
15:00
the business model. So we've seen how P .E. is
15:02
distorted by dilution and business cycles. And
15:05
we've seen how price to book is distorted by
15:07
goodwill and intangible accounting. But the P
15:11
.E. ratio has a much deeper foundational flaw
15:14
that we haven't even touched on yet. It completely
15:16
ignores how you paid for the business. It ignores
15:19
the debt. Yes. Net income. The actual earnings
15:22
in the P .E. ratio is calculated after interest
15:25
payments are made to the bank. But the ratio
15:27
itself gives you no indication of how heavily
15:29
indebted the company is to generate those earnings.
15:32
Right. Two companies can have the exact same
15:34
PE ratio, but one might have zero debt and the
15:37
other might be leveraged to the hilt, just teetering
15:40
on the edge of bankruptcy. Which is terrifying.
15:42
So to get a truly honest valuation, we need a
15:44
metric that is completely capital structure neutral.
15:47
We need something that evaluates the core operation,
15:50
regardless of whether management funded it with
15:52
equity or debt. And that brings us to EV to EBICTA.
15:57
Enterprise value to earnings before interest,
15:59
taxes, depreciation, and amortization. I mean,
16:03
that just sounds like terrible Wall Street jargon.
16:05
But enterprise value is actually a very simple,
16:08
very intuitive concept. Yeah, think about buying
16:11
a house. Exactly. The market cap of a company
16:14
is just the down payment on the house. It's the
16:16
cash you hand over to get the keys. But enterprise
16:19
value is the full cost of the house. Right. Because
16:22
when you buy that property, you don't just get
16:24
the keys. You're also taking over the massive
16:27
mortgage that the previous owner left behind.
16:30
You have to account for that debt to know what
16:31
the house actually costs you. And taking that
16:34
mortgage analogy a step further, if you ignore
16:36
that mortgage, you aren't just getting a bad
16:37
deal. You're fundamentally misunderstanding the
16:40
risk you are taking on. Yep. Because in the corporate
16:42
world, if you buy an entire public company, you
16:44
buy all their equity, the market cap, but you
16:46
assume every penny of their debt. And well, as
16:49
a small bonus, you get to keep whatever cash
16:51
they currently have sitting in their checking
16:53
account. So the formula for enterprise value
16:55
is market cap plus debt. minus cash. Yeah. Let's
16:59
run this for Meridian Tool Works. The market
17:02
cap or down payment is $220 million. Then we
17:05
add the mortgage, their total debt, which is
17:07
$82 million. And we subtract the cash sitting
17:11
in the till, which is $8 million. So 220 plus
17:14
82 minus 8. That gives us an enterprise value
17:17
of $294 million. That is the true total price
17:22
tag to acquire the entire operation. Now we need
17:25
the denominator EBITDA. Earnings before interest.
17:28
taxes, depreciation, and amortization. We are
17:31
deliberately moving back up the income statement.
17:33
Why is that? We want to see the pure cash flow
17:36
generated by the core business operations before
17:38
the government takes a cut with taxes and before
17:41
the bankers take a cut with interest. And we
17:43
also strip out depreciation and amortization.
17:45
Why do we ignore those? Because depreciation
17:47
is a paper expense. If a company bought a multimillion
17:50
dollar factory tractor five years ago, the accountants
17:53
spread that cost out over time, subtracting a
17:56
little bit from the earnings every year. But
17:58
no actual cash is leaving the company bank account
18:01
today for that tractor. So EBITDA adds that paper
18:04
expense back in to give us a clear picture of
18:07
the actual cash moving through the business right
18:09
now. Makes sense. So from their income statement,
18:12
Meridian's EBITDA is roughly $42 million. So
18:16
we take the true cost of the house, the enterprise
18:18
value of $294 million, and divide it by the operational
18:21
cash flow of $42 million. $294 over $42. That
18:26
gives us exactly 7 .0x. And think about the mechanics
18:29
of why this metric is so powerful for comparing
18:32
companies. A highly leveraged company with massive
18:35
debt might look artificially cheap on a P .E.
18:38
basis. Oh, because the debt pushes the equity
18:40
value down, shrinking the market cap, which makes
18:42
the down payment look tiny. Retail investors
18:45
see a small market cap and a low P .E. and think,
18:47
hey, It's a bargain. Exactly. They see the cheap
18:49
down payment and completely ignore the giant
18:52
mortgage waiting for them. EV to EBITDA forces
18:54
you to look at the mortgage. It prices the entire
18:57
business, assuming the debt, against the operational
18:59
cash flow before interest payments mask the reality
19:02
of the leverage. It levels the playing field.
19:04
It prevents you from buying a mirage. And speaking
19:08
of mirages, that actually brings us to the final
19:11
valuation trap we need to discuss today. Oh,
19:14
right. The dividend yield trap. This one is particularly
19:17
devastating because it preys on investors who
19:20
are just looking for safe, reliable income. So
19:23
Meridian Toolworks pays a dividend. Let's say
19:26
you look at your stock app, and it says Meridian
19:27
is paying an 8 % or 9 % dividend yield. For a
19:31
lot of people, the analysis stops right there.
19:34
They assume they've found the ultimate income
19:36
bargain. I hear people say all the time, hey,
19:38
even if the stock price drops a bit, I'm getting
19:40
paid 9 % a year just to wait. Yeah, but the mechanism
19:44
behind that high yield is usually a warning siren.
19:47
You have to understand how the yield is actually
19:49
calculated. The dividend yield is just the annual
19:52
dividend payout divided by the current share
19:54
price. Right, so if the company pays $1 a year
19:56
in dividends and the stock is trading at $20,
19:59
the yield is a healthy 5%. Now imagine, the company
20:02
reports terrible cash flows. The institutional
20:06
investors panic and sell off the stock en masse.
20:09
The share price plummets from $20 down to $10.
20:13
Ouch. But the board of directors hasn't officially
20:15
held a meeting to change the duoden yet, so the
20:17
payout is technically still listed at $1. Oh,
20:20
man. So run the new math. $1 divided by a $10
20:24
share price. The yield just mathematically spiked
20:27
to 10 percent. And that 10 percent yield isn't
20:30
a gift from the market. It is a mechanical death
20:32
spiral. The share price dropped because the market
20:35
knows the cash flow is terrible. When the yield
20:38
skyrockets artificially like that, the market
20:41
is actively forecasting that the company will
20:43
soon be forced to cut or entirely suspend the
20:45
dividend to save cash. The market is saying.
20:48
They can't afford this jump ship. Exactly. Relying
20:51
on the phrase the yield is high is not an analysis.
20:54
You always have to ask why the yield is high
20:56
and what chain of events caused the share price
20:58
to drop. You have to look at the payout ratio
21:01
and the free cash flow to see if the company
21:02
is actually generating enough money to cover
21:04
the check they are promising to mail you. That
21:06
is so important. So let's wrap this up and summarize
21:09
the mechanisms we've discovered today. Value
21:12
ratios are just tools. They are not verdicts.
21:15
Right. You have to know exactly what inputs are
21:17
feeding into them. We learned that trailing PE
21:20
tells you about a past that might not exist anymore,
21:23
while forward PE is relying on analysts who are
21:25
just guessing at the future. And we saw how enterprise
21:28
value to EBITDA cuts through the dangerous illusion
21:31
of leverage by forcing you to price the entire
21:34
capital structure of the business, debt included.
21:37
And crucially, we exposed the mechanics of the
21:39
cyclical value trap. The cheapest -looking multiple
21:42
for a resource stock almost always arrives at
21:45
the absolute peak of its earnings cycle right
21:47
before the commodity crashes. Because a low multiple
21:50
usually means the market sees a massive risk
21:52
on the horizon. But I want to leave you with
21:54
a final slightly mind -bending thought about
21:56
the limitations of absolutely everything we discussed
21:59
today. Oh, I like this one. Every single value
22:01
ratio we unpacked, PE, price to book, EV to EBITDA.
22:05
They all inherently rely on the balance sheet
22:08
and reported earnings to determine what a fair
22:10
price should be. They require audited, documented
22:13
numbers that fit into very strict accounting
22:15
rules. But under current accounting standards,
22:18
some of the most valuable things a company can
22:20
possess are completely invisible on the balance
22:23
sheet. Yeah. Internally developed brands, highly
22:27
loyal customer networks, self -generated algorithms,
22:31
corporate culture. I mean, you cannot... put
22:34
a firm accounting value on a brand identity that
22:36
was built organically over 20 years of exceptional
22:40
service. No, you can't, because the company didn't
22:42
buy that brand from someone else. There is no
22:45
goodwill premium to record. It simply doesn't
22:48
exist in the book Equity. So think about what
22:51
that means. If a company's single most valuable
22:53
asset is literally unrecorded by the accountants,
22:57
might a stock that looks historically expensive
22:59
on paper actually be the greatest hidden bargain
23:02
in the entire market. It's a huge blind spot.
23:05
Because the market is pricing in a massive, invisible,
23:08
highly profitable asset that the rigid mathematical
23:10
ratios are just completely blind to. It just
23:12
reminds us that the numbers are just a proxy
23:14
for reality. They never tell the whole story.
23:17
Something for you to ponder before you place
23:19
your next trade. Because as we saw today, relying
23:22
on value ratios is a lot like relying on an x
23:25
-ray machine to diagnose a complex illness. Sometimes
23:28
the picture you get is crystal clear. Sometimes
23:31
the most important life -saving detail is the
23:35
exact thing the machine was never designed to
23:37
see in the first place.