Episode summary
The Market Cares About Fundamentals — Just Not Yours | The Weekly Wrap - 5/31/2026
Excess Returns
· · Guests: Adam Parker, Robert Hagstrom, Eric Crittenden
Summary
The episode argues that markets can look expensive on yesterday’s numbers and still be rational if they are discounting future earnings, revisions, and margin changes. The host leans on Adam Parker’s view that valuation alone is a weak stock-picking tool, and that the more useful signals are estimate revisions, earnings beats, and changes in gross margin. In that framing, cheap stocks are often cheap for a reason, while the real edge comes from spotting where expectations are too low or too high.
Robert Hagstrom’s history lesson on Harry Markowitz and modern portfolio theory pushes the discussion into how investing became more institutionalized. The host contrasts Buffett’s “casino” and “cathedral” metaphor with portfolio construction that treats stocks more like volatility inputs than businesses, while also noting that many active managers end up approximating the index at a fee.
Eric Crittenden adds a different lens: hedgers may accept losses on one side of a trade because hedging lowers business risk and cost of capital. That same structure, he argues, helps explain why trend following can work by providing liquidity when hedgers most need it, though survival depends on diversification, leverage, and resisting the urge to tinker during drawdowns.
Key takeaways
- Adam Parker argues valuation alone does not work well for picking individual stocks; expectation changes matter more than low P/E ratios.
- The host says the market can be rationally pricing 2030 or 2031 fundamentals, even when current headlines look scary.
- Adam Parker says about 70% of companies beat estimates, and the penalty for missing has become harsher than the reward for beating.
- Robert Hagstrom traces modern portfolio theory back to Harry Markowitz and says it helped turn risk into volatility and investing into an institutional process.
- Eric Crittenden argues hedgers can lose on the hedge but still win overall because hedging lowers a firm’s cost of capital and reduces bankruptcy risk.
- Crittenden says trend following works because it provides liquidity to hedgers in their moment of need, but only if leverage and diversification are managed well.
Notable quotes
“valuation doesn't work to pick stocks I mean I don't know how many times you have to how many years you need to know that”
“about 70% of companies beat estimates. So, you got to like unanchor your head from it being 50/50”
“risk was the variance of return and already Graham was saying variance of return has nothing to do with risk”
“they're lowering their cost of capital across the whole spectrum of the business so much that they're making a lot more money”
How the episode opens
And that's what stopped me cold in the tracks because this was the very first time anybody had ever said anything about well let me put it this way he said that risk was the variance of return and already Graham was saying variance of return has nothing to do with risk valuation doesn't work to pick stocks I mean I don't know how many times you have to how many years you need to know that like I mean I I actually have kind of changed my view on that to the point of like I just almost think it's arrogant it. Now, if you say I buy a stock cuz it's cheap, they may lose 2 3% a year on the hedging side, which can be leveraged up to 6 9 12% from from someone that's trading opposite them. Um, but they're they're lowering their cost of capital across the whole spectrum of the business so much that they're making a lot more money.
Welcome to the XS Returns weekly rap. I'm Jack Forehand and I'm I'm joined by a man who's been dropping some incredibly deep life wisdom on LinkedIn. Um because
What do I do on LinkedIn? — So I'm scrolling I'm scrolling through the other day, you know, and basically as you know I'm not a man who wants to have too much introspection about my life here. I just want my data and I want to move on with my life. So I'm doing
Introspection is is a lot of trouble. — Put it on the record. Yeah. It'll only get you into trouble. Better to never introspect. Plow ahead. Bottle it up. Just buck. So when I go on LinkedIn, I basically just want to see a bunch of people selling themselves with AI generated posts because that's basically what it is these days.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock valuation
- earnings revisions
- modern portfolio theory
- hedging and cost of capital
- trend following liquidity
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Excess Returns, this episode and its artwork belong to Excess Returns. Octagon is not affiliated with the show; this page is an independent summary.
