#185 - Rockefeller’s Letters, Market Valuations are Frothy
- 3 minutes ago
- 4 min read
My view is that buying and holding real estate is not an effective investment strategy in our current economic environment, for a few reasons.1) Real estate is more interest rate sensitive than it is inflation sensitive, so given our current circumstances it is likely to go down in real terms2) It is a fixed asset that is easy to tax, which limits its impacts on your ability to diversify3) Real estate is nailed down, so investing in it makes it more difficult to move money from one place to anotherThat’s my view, in a nutshell. I’m curious to hear if you agree.-Ray Dalio
This week I listened to John Rockefeller’s 38 letters to his son and they were full of glimpses into the oil billionaire’s thoughts and business dealings. Rockefeller was a disciplined and visionary entrepreneur who transformed the oil industry by founding Standard Oil, pioneering modern corporate organization, and driving unmatched efficiency. Known for his ruthless competitiveness, he built a near-monopoly while insisting his success reflected God’s providence. Later in life, he became one of history’s greatest philanthropists, giving away over half a billion dollars to education, public health, and scientific research. His legacy remains a paradox of relentless capitalism, transformative generosity, and religious piety.
Here are a few quotes that are worth sharing from the letters:
“In my opinion, “excuses” is a mental illness, and people with this serious illness are all losers without exception.”
“Only by being able to endure what people cannot bear, can you do what people cannot do.”
“Work is the price we pay for enjoying success. Wealth and happiness can only be obtained by hard work.”
“Lincoln’s life wrote a great truth: unless you give up, you will not be defeated.”
“Too many people overestimate what they lack, but underestimate what they have, and lose the chance to become a winner. This is a tragedy.”
“Do not take the first step without thinking about the last step.”
“I have been annoyed by my broken shoes until I met a man who has no feet.”
“Friendship built on business is far better than a business built on friendship. Be nice to others when you climb up, because you will run into them when you go downhill.”
“I admit that we cannot control the direction of the wind, but we can adjust the sail – in other words, choosing our attitude.”
“Failure is a good thing as long as it does not become a habit.”
Markets Are Looking Frothy
Valuation metrics across U.S. equities are flashing red, with several measures now exceeding prior bubble peaks. The data suggests investors are paying far more for earnings than at almost any point in history.
Nasdaq vs. Money Supply: Nasdaq’s market cap is now 145% of U.S. M2 – an all-time high, beyond the dot-com bubble.
CAPE Ratio: The S&P 500’s 5-year CAPE is ~37, about 55% above its long-term average.
Buffett Indicator: Total U.S. stock market value is >212% of GDP, far past Warren Buffett’s “danger” zone (~200%).
Price-to-Book: S&P 500’s P/B at 5.3×, exceeding dot-com era levels (5.1×).
Concentration Risk: Top 10 S&P companies now make up ~37% of the index, with valuations far above the rest of the market.
Speculation: Activity in unprofitable/high-multiple stocks has returned to 2021 mania levels, with froth also visible in meme stocks, AI names, and crypto (Bitcoin near $124K).
Private Market Excess
Private capital markets show similar froth, with valuations climbing even as deal activity slows. Venture and growth investors are paying record prices for fewer companies, echoing late-cycle risk-taking.
Rising Valuations Despite Fewer Deals: Median seed-stage valuation at $16M (+18% YoY), even with deal count down ~28%.
Mega-Funds: VCs like Andreessen Horowitz raised $7B+ funds, chasing growth and AI.
Sky-High Exits: Google’s $32B purchase of Wiz set a record for VC-backed M&A.
How I’m Positioned
In light of the prevailing market conditions, I’m balancing participation in equities with liquidity, safe yield, and explicit downside protection. Why? Simple. I will sleep better at night knowing that I am invested in some of the world’s greatest businesses (despite some of them being fully or even slightly overvalued) while maintaining a healthy position in short term treasuries for yield purposes (and minimal duration risk) and a full ATM long-term put option on the S&P. Of course, I may miss a market melt up to some degree, but I should be hedged extremely well if valuations unwind in the next 12 months and should only experience a 2-3% drag on my portfolio should the equity markets grind horizontally or melt up over the next year. Here’s what my personal account (excluding real estate and private investments) looks like from a top down perspective:
40% Short-Term Treasuries: ~4.5% risk-free yield, minimal duration risk, flexibility if rates rise.
55% Equities (Selective): Concentrated in ~15 durable, high-quality businesses, with tilt toward businesses with high returns on capital and durable moats.
5% Cash: Held for liquidity and opportunistic buying power.
Long-Dated S&P 500 Puts: Portfolio insurance against a broad market drawdown.
Tariff revenue skyrocketed after 1 month of tariffs - US Treasury Department
Investor’s Corner
38 letters from J.D. Rockefeller to his son - Link
Elliott’s thesis on its $5B investment in Honeywell - Link
Investing in a world of permanent stimulus - Vincent Deluard - Link
The calculus of value - Link
Brian Moynihan, CEO of Bank of America - Norges Investment Bank - Link
Technology Corner
The state of AI in 2025 - Bessemer Venture Partners - Link
One of our former industrial clients, Vulcan Elements, raised $65M to manufacture rare earth magnets in the USA - Link
Near and dear to me - $6B data center project announced in Tarboro, NC to create 500+ jobs - Link
What would the aftermath after an AI bust look like? Link
Ex Google Exec warns: the next 15 year will be hell - Link
Philosophy, Politics, Theology Corner
Did Vatican II Replace One-Sided Papalism with One-Sided Episcopalism? - Link
WW3 Threat Assessment: Is the West Collapsing? - Diary of a CEO Link
Sen. Eric Schmitt - FBI & DOJ Corruption, How Politicized Judges are Undermining America - Tucker Carlson - Link