Rethinking Safety: What Ben Graham Would Buy Today
In this issue:
Innovator’s Corner: Is vibe-coding the end of traditional software for financial advisors?
Thoughts from 10 recent hedge fund managers’ investor letters (3Q 2025)
The death of 60/40: Why major institutions are pivoting from bonds to gold
Rethinking Margin of Safety: how to apply Ben Graham's principles to modern growth companies
1. Innovator’s Corner: Is vibe-coding the end of traditional software for financial advisors?
I recently sat down with Sinan Biren, CRO at Collation AI, to discuss a trend that could render traditional wealth tech platforms obsolete!
KP: What's driving this shift you're seeing in the market?
Sinan: At FeatureProof, I was asked this question at least ten times: "If you're warehousing my data, and I can use vibe-coding tools to build custom interfaces… why am I spending $250,000 on all these other platforms?"
Here's what's happening: vibe-coding tools like Lovable, Bolt, and Cursor let you describe what you want in plain English and build functional applications in hours, not months.
In fact, six weeks ago, a developer posted a video showing how he replicated monday.com in two hours using these tools. The company's stock price plummeted.
This isn't theoretical anymore. Ten of my RIA clients have already terminated their CRM and portfolio system contracts to build bespoke solutions for literally a few hundred dollars.
KP: That sounds terrifying to a traditional software vendor… Can you walk me through how it actually works for an advisory firm?
Sinan: Think about what all the major wealth platforms really are underneath all the marketing: a database, some workflows, and dashboards. That's it.
The problem you had is that your client data was fragmented: your clients’ risk appetite in your CRM, portfolios in your portfolio system, planning data elsewhere. No holistic view anywhere. Until now.
Our approach is different:
We pull data from all your systems using APIs, web scraping, and PDF extraction.
Then, we aggregate everything into a data lake that you own and control.
That way, with all your data in one place, you can build whatever interface you want.
KP: What about the backend complexity – authentication, security, databases?
Sinan: You’re right. Vibe-coding tools are brilliant at creating beautiful front-ends but often deliver "half-baked cakes." Larger RIAs with IT teams can handle it. For smaller firms, that's where we step in to complete the technical pieces they can't.
KP: How do you see this evolving?
Sinan: We're witnessing the end of Software 101 – the model where vendors lock up your data and charge toll fees to access it. I believe we'll see more stock price corrections like monday.com's as the market realizes entire categories of software can be replicated for pennies on the dollar.
The real question is what happens to platforms like Salesforce in the next 12 months. They're charging millions for "AI insights" dashboards that advisors can now build themselves for a few hundred dollars.
The future belongs to firms that own their data, control their workflows, and build technology that adapts to them rather than the other way around.
2. Thoughts from 10 recent hedge fund managers’ investor letters
Greenlight Capital: Sounding the Alarm on AI's Unsustainable Math
When Tim Cook promises $600 billion in US spending and Mark Zuckerberg matches it, Einhorn asks a simple question: where will the money come from? He notes that McKinsey estimates $6.7 trillion in global datacenter spending through 2030, yet the Magnificent 7 tech companies generated only $500 billion in combined cash flow in 2024. Even dedicating all of it to AI – eliminating dividends and buybacks – leaves a multi-trillion dollar funding gap. More troubling: AI revenues would need to reach $2 trillion by 2030 (100% of today's global advertising anubscription revenue combined) just to generate adequate returns. Einhorn draws parallels to the late-1990s internet bubble, warning that "a tremendous amount of capital destruction is going to come through this cycle" and refusing to participate in what he views as today's "most expensive market we have experienced."
Praetorian Capital: Positioning for Economic Contraction and the "Craziest Bubble" in History
Harris Kupperman delivers perhaps the most bearish assessment, describing current conditions as "the craziest bubble of my professional career, and by many metrics, the craziest in human history." He argues that stagnant economic growth is a conscious political choice by major governments (Europe, Japan, and to a lesser extent the US) rather than an accident, with only China focused on activity – but via exports to saturated markets rather than domestic consumption. This creates an environment where capital is being destroyed rather than created. Kupperman expects an eventual market "gut-punch" when investors realize AI economics won't meet lofty expectations and that private equity, venture capital, and private credit portfolios carry inflated marks.
Alluvial Capital: Favoring Apartment Buildings Over Quantum Dreams
Alluvial Capital's Dave Waters articulates the philosophical divide in today's market with a pointed comparison: Rigetti Computing, a quantum computing company with minimal revenue, commands an $18 billion valuation – matching Mid-America Apartment Communities, which owns 104,000 actual apartments generating $21,000 in annual rent each. The fund maintains exposure to real assets and cash-generating businesses, with 25% allocated to gold as a hedge against inflation and potential economic setbacks. Waters remains cautious about speculative excess, noting that when similar fevers have broken historically, "it does so quickly and without warning."
Upslope Capital: Extended Valuations Signal Asymmetric Downside Risk
Upslope is waving caution flags, describing the current environment as "asymmetrically negative over the medium-term." Portfolio manager George Livadas points to four concerning signs:
extremely stretched valuations that everyone acknowledges but many defend,
a circular AI investment boom where the money largely flows back to the same players,
a market where "throwing darts is more effective than sober analysis," and
an environment where short-selling speculative stocks has become "nearly impossible."
In response, Upslope is positioned defensively with quality longs and high-beta shorts at modest net long exposure, essentially preparing for turbulence.
Plural Investing: Strange Market Dynamics Suggest Caution and Selectivity
Chris Waller describes 2025 as a "strange year" where fear indicators and risk assets simultaneously surge – gold and silver soaring while the S&P 500 hits all-time highs. With consumer confidence negative every month through September (a feat not seen since early COVID), concerns about private credit cracks, and questions about AI capital expenditure overbuilding dominating headlines, Waller sees contradictions everywhere. Yet he argues the economy has been held back by the fastest rate hikes on record while technological progress accelerates at "mind-blowing speed." His conclusion: "higher for longer" is likely overdone.
LVS Advisory: The Electricity Shortage Creating a Multi-Year Investment Opportunity
LVS Advisory is doubling down on a straightforward thesis: America is running out of power. Their research suggests electricity demand will outstrip baseload supply by nearly 50 gigawatts over the next five years, driven by AI data centers, electric vehicles, and growing global energy needs. The firm has positioned over 20% of its Growth Portfolio in power generation investments. LVS sees electricity as the "critical cornered resource" that will define the next decade of investing.
Wedgewood Partners: The AI Infrastructure Boom May Be Headed for a Reckoning
David Rolfe's team sounds alarm bells about unsustainable capital spending in AI infrastructure, describing a concerning shift from "capex-light" to "capex-heavy" tech companies. The fund highlights staggering figures: hyperscalers' capex now consumes 72% of operating cash flow (up from 30-40% historically), with forecasts calling for $2.8 trillion in AI infrastructure spending through 2029. Wedgewood worries that rapid GPU depreciation, massive debt issuance (over $157 billion in new tech debt this year alone), and exponential power requirements (OpenAI targeting 250 gigawatts by 2033 – roughly 25% of current total US electricity consumption) create a precarious situation.
Aristotle Capital: Corporate Resilience Trumps Macro Headwinds
Despite facing the highest tariff rates in nearly a century, persistent inflation above the Federal Reserve's 2% target, and signs of labor market cooling, Aristotle Capital remains optimistic about US corporate fundamentals. The firm notes that S&P 500 companies delivered impressive 11.7% year-over-year earnings growth in Q3, with over 80% exceeding EPS estimates – even as more than 340 firms cited tariff-related challenges.
Polen Focus Growth: Adapting to AI Reality After Years of Skepticism
After sitting on the sidelines of the AI semiconductor boom for 2.5 years due to concerns about cyclicality, Polen Focus Growth made a significant philosophical shift in Q3 by initiating positions in both NVIDIA and Broadcom. The catalyst? An accumulation of data points – including Oracle's stunning $30 billion cloud contract, Meta's pledge to invest "hundreds of billions" in data centers, and Google's $85 billion capex guidance – that convinced them the AI infrastructure buildout will persist far longer than typical semiconductor cycles.
3. The death of 60/40: Why major institutions are pivoting from bonds to gold
ClearValue Tax, Episode: The 60/40 Investing Rule is Dead — Here's What's Replacing It (Oct. 20, 2025)
TLDR
The traditional 60/40 portfolio (stocks/bonds) is failing because stocks and bonds now decline together during market stress
Major institutions including BlackRock, Morgan Stanley, and Ray Dalio are recommending 15-25% gold allocations versus bonds
Treasury bonds offer 4-5% yields while true inflation runs closer to 6-8%, creating a guaranteed real loss for bond holders
For decades, the 60/40 portfolio was gospel: 60% stocks for growth, 40% bonds for stability. The theory was simple and elegant. When stocks fall, investors flee to bonds, which rise in price and cushion the blow. But this relationship has broken down. During recent market stress, both stocks and bonds have fallen simultaneously. This isn't a temporary glitch. It represents a fundamental shift that's forcing institutions to rethink portfolio construction.
Why has the negative correlation between equities and bonds broken?
When bond prices fall, yields rise (they move inversely). Higher yields often trigger stock market declines as borrowing costs increase. So falling bonds actually pull stocks down with them instead of providing a cushion. The diversification benefit that made 60/40 attractive has disappeared.
There's a deeper issue. Foreign central banks are selling US Treasuries as part of a broader "sell America" trend. When other countries dump our bonds and pull money from US stocks, both asset classes face downward pressure simultaneously. This isn't speculation. Foreign central banks now hold more gold than US Treasuries for the first time since 1996.
What major institutions are recommending instead
BlackRock CEO Larry Fink is publicly challenging the 60/40 rule. His recommendation: shift to 50% stocks, 30% bonds, and 20% private assets like real estate. But other institutions are going further in a specific direction: gold.
Morgan Stanley's Chief Investment Officer recommends 60% stocks, 20% bonds, and 20% gold. Their reasoning is straightforward. Gold acts as an inflation hedge, and in the current environment with persistent inflation, bond prices need to fall to compensate investors with higher yields. Gold, meanwhile, has outperformed bonds as a diversifier over the past two decades.
Ray Dalio, founder of Bridgewater Associates (the world's largest hedge fund), suggests investors allocate up to 15% of their portfolios to gold. Jeff Gundlach, known as the "bond king" and founder of DoubleLine Capital, recommends 25% in gold. These aren't fringe voices. These are institutions managing trillions of dollars rethinking what balanced portfolio means.
The math behind why bonds are a losing proposition
Treasury bonds currently yield 4-5% annually. Government-reported CPI inflation sits around 2.9%. On paper, bonds provide positive real returns. But here's what most people miss: the government itself acknowledges CPI doesn't measure true inflation.
A Federal Reserve document from the New York Fed states explicitly: "Although CPI does not measure true inflation, we currently have no thoroughly viable alternatives." CPI measures changes in the cost of the standard of living, which is subjective and easily manipulated. True inflation, measured by shadow stats or money supply metrics, runs roughly double the official CPI figure, closer to 6-8% annually.
If you lock in a 4-5% yield for 30 years while actual inflation runs at 6-8%, you're guaranteeing a real loss. You're effectively paying to lend money to the government.
Why gold demand is accelerating
Currently, average investors allocate less than 1% of their portfolios to gold. But institutional recommendations range from 15-25%. As portfolio managers shift recommended allocations from bonds to gold, that creates a massive new wave of demand. Central banks have already been loading up on gold, front-running this shift. Smart money from institutions is next. Then comes the retail wave.
Bank of America projects gold prices to reach $6,000 by spring. Jamie Dimon, CEO of JPMorgan, sees gold hitting $5,000 to $10,000 in the foreseeable future. These aren't gold bugs making predictions. These are mainstream financial institutions repositioning portfolios.
What this means for portfolio construction
The key question isn't whether gold has already risen (it has). The question is whether the fundamental drivers remain intact. As long as Treasury bonds offer below-inflation yields and institutions continue shifting allocations from bonds to gold, demand pressure continues. Short-term volatility is guaranteed. Long-term direction seems clear.
4. Rethinking Margin of Safety: how to apply Ben Graham's principles to modern growth companies
We Study Billionaires podcast, Ep. 762: Timeless Secrets of the World’s Greatest Investors (Oct. 18, 2025)
TLDR
Traditional value investing's focus on tangible assets misses the margin of safety available in high-quality growth companies with strong intangibles
You can stress-test growth investments using scenario analysis – even if growth gets cut in half or multiples compress, the best businesses still protect capital
Warren Buffett's reputation and integrity created a "moat of trust" that brought him deal flow – a lesson in how character contributes to long-term success
Ben Graham's margin of safety concept is one of investing's most enduring principles. Buy assets for less than they're worth, giving yourself a cushion against mistakes. Simple, right? But there's a problem: Graham's version of safety was built for a different era. He focused on tangible assets – factories, inventory, cash on the balance sheet. If a company traded below its net working capital, that was safe. But in today's world, dominated by software, brands, and network effects, this approach leaves massive value on the table.
How Warren Buffett's character became his competitive advantage
Let's start with a lesson that has nothing to do with numbers: Warren Buffett's integrity. Buffett's brutal honesty and transparency didn't just make him admired – they directly contributed to his investment success. When business owners want to sell their companies, they don't just look for the highest bidder. They want someone they trust to preserve their legacy and treat employees fairly.
Because Buffett spent decades being completely transparent about his mistakes in annual shareholder letters, he built a reputation that money can't buy. Family business owners would call him first when they were ready to sell, often accepting lower prices to work with someone they trusted.
This "moat of trust" became a competitive advantage that compounded over time. The lesson: your reputation and integrity are assets that take decades to build but can generate opportunity flow that others can't access.
Applying margin of safety to growth companies
Here's where it gets practical. Imagine a company trading at $10 per share with earnings of $1 (a 10x P/E ratio). It's growing earnings at 26% annually. Traditional value investors might say this is dangerous – it's trading at 5 times book value and has negative working capital. Where's the safety?
But look at it differently. If this company maintains 26% growth for three years, earnings grow to $2 per share. Even if the market is bearish and keeps the P/E at just 10x, the stock is worth $20 – you've doubled your money. If the company deserves a market multiple of 30x (reasonable for a fast grower), it's worth $60.
Now stress-test it. What if growth gets cut in half to 13%? The stock is still worth $15 in three years. What if the P/E compresses to 5x? You still break even.
You'd need the growth story to completely fall apart: earnings cut in half AND the multiple compressing to 5x, before you actually lose money. That's a margin of safety, just calculated differently than Graham would have done it.
Disclaimer
This newsletter is for informational and educational purposes only and should not be construed as personalized financial, tax, legal, or investment advice. The strategies and opinions discussed may not be suitable for your individual circumstances. Always consult a qualified financial advisor, tax professional, or attorney before making any decisions that could affect your finances. While we strive for accuracy, we make no representations or warranties about the completeness or reliability of the information provided. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. The publisher, authors, and affiliated parties expressly disclaim any liability for actions taken or not taken based on the contents of this publication.
