Michael Lewis and Tom Lee take stock of the trillion-dollar software stock massacre

The duo analyzed a market marked by extreme volatility, where software stocks are falling “drastically” and artificial intelligence is threatening to wipe out entire industries. But the most interesting moment came when Lewis, the author of… big short, We shared a bad statistic about who actually makes money in these environments.

“Did you know that Fidelity published a report on Fidelity’s top-performing retail accounts?” Lewis asked the audience. “And it was all the customers who died.” (Lewis was referring to A The famous 2014 study In fact, I found that the best-returning ministerial portfolios were left alone, whether due to death or distraction.)

A few moments later, Lee cited research on how forty thousand shares have gone public or spun off since 1974, 90% of which have fallen by more than 50%, and the vast majority of which have gone to zero: “In other words, the majority of the shares have basically gone to zero.”

FOMO or death?

The anecdote highlighted the evening’s main theme: in a market driven mad by fear of missing out (FOMO) and algorithmic trading, doing nothing is often the best strategy.

“The message is not: Die,” Lewis explained dryly. “Don’t over-trade.”

Lee, head of research at Fundstrat, supported this view with data from his own company. He noted that while institutional investors have reduced their time horizons to mere days – or in some cases held stocks for “about 40 seconds” – individual investors are “doing it right” because they are working with permanent capital. Or because they are literally dead, they are unable to withdraw their capital from the market. Unlike hedge funds that build positions based on daily profit and loss, retail investors hold their assets.

“You know,” Lee told the audience, seeming to be referring to high-frequency trading patterns, as covered in Lewis’ book. Flash Boys“The average stock is held for about 40 seconds. So most (of) these big hedge funds… a second or five seconds is considered a long holding period. So a lot of money is literally trading through stocks.” (Asset Management Officer Barry Ritholtz I have objected to estimates of this kind, arguing that they apply only to high-frequency traders and do not represent most stock market activity.)

Lee noted that Thomas made a good point in her post.

“There’s something different this year. Suddenly, a lot of stocks and industries started shrinking,” Lee said. “So the software industry, for example, is seeing shrinking demand and repricing of its services, and there are now many research reports that suggest that agent AI or AI products are starting to replace traditional software.”

It’s a lot of shrinkage, too. Bloomberg calculated The iShares ETF has bled nearly $1 trillion over the past seven trading days.

Lee said he views this as evidence of AI’s productivity and a long-term positive, arguing that less is spent on software because AI performs that function instead; There are also fewer technology employees now than in 2022, when ChatGPT was released.

However, Lewis said he saw echoes of the dot-com bubble. He warned that investors are “once again confusing technology with corporate profits,” assuming that just because AI is transformative, it will inevitably lead to a windfall in the stock market.

“It may actually be a machine to reduce corporate profits,” Lewis said, noting that many of today’s largest companies may eventually “collapse.”

The conversation veered into existential risks for other asset classes as well, painting a picture in which “safe” assets could theoretically fall to zero. Lee suggested that Bitcoin could be made obsolete by quantum computing or even AI itself, if the AI ​​decides to run its own “verification language” and bypass human cryptocurrency chains entirely. Even gold, a $35 trillion asset by Lee’s calculations, is not immune to currency depreciation.

“There is a million times more gold underground than above ground today,” he told me, thinking that if it became too expensive, the Seven Wonders would get into gold mining, “because it’s also better to dig for gold.”

Given the talk of bubbles and the potential collapse of assets, Lewis revealed that he has moved into a defensive crouch mode – specifically, an “Armageddon trade.”

Lewis admitted, saying: “When I have (gold), I think I am afraid for a long time,” revealing his position in the metal, which he did not advise any listener to follow suit in obtaining. “I don’t see any reason not to be afraid. I think fear is not a bad thing to live a long time now.”

For the live investors in the room, their conclusion was a paradox: The market is dangerous; Technology erodes profits. The best way to survive may be to emulate the dead – the only capital that can be relied upon is permanent capital.