"Investing Based on Stock Prices Is Wrong" ... A Blunt Assessment from an Economic Commentator with 30 Years of Experience [fn Insight]

[Financial News] Economic commentator Jiho Yoon met with Financial News on the 4th and summed up the current market in one line: "It is a market that is difficult to navigate in either direction." After serving as the head of a securities firm's research center, he now works as an economic commentator. He began by saying, "The questions investors are asking right now are fundamentally wrong."


Yoon first cautioned against viewing the market through a framework that divides it into three possibilities: rising, falling, or moving sideways. "Even if it rises, we do not know whether it will move up at a 15-degree angle or a 70-degree angle. There are countless possible paths, but people keep trying to reduce them to just three," he said.
His key question is, "What should we look at first?" He explained, "If you think of a light shining ahead, business comes first, followed by earnings, and the stock price comes last." He added, "If you keep looking at the stock price, you think everything will be fine when it rises and that it is all over when it falls, leaving you unable to decide what to do."
As Yoon sees it, the current market is one in which a positive scenario and the risks threatening it are evenly matched. There are two positive scenarios: improved corporate earnings driven by artificial intelligence (AI) investment, and expectations for greater shareholder returns stemming from amendments to the Commercial Act.
But the opposing forces have also grown stronger: concerns about cash flows across the AI ecosystem and higher interest rates. Yoon explained, "Semiconductor companies are not struggling to advance because they are failing to make money. They are struggling because the discount rate has risen. With the real interest rate—the U.S. 10-year Treasury yield minus inflation expectations—at 2.5% to 2.6%, above the potential growth rate, investors can earn that level of annual return from bonds, making it difficult to find stocks particularly attractive."
He said NVIDIA's earnings announcement marked the turning point. "The margin was 75%, but when we looked inside the figures, a substantial portion of second- and fourth-quarter earnings came from gains on the valuation of equity investments. Only 40% of the earnings are recovered in cash; the rest is on credit," he explained. He also cited Oracle as an example. "Its stock jumped 7% after the company reported 30% revenue growth and a 184% increase in operating cash flow. But after excluding advance payments, the figure was $1.1 billion, not $1.4 billion. The stock began to fall that day," he said.

How, then, should investors respond? Yoon answered, "This is a range-bound market where you can make a trading buy, or a short-term purchase, but it is not easy to expect a sustained uptrend." He rejected a one-size-fits-all prescription, however. "It depends on what percentage of your total assets is invested in stocks. The most we can do is determine whether we are in a trending market or a range-bound market," he said.
He cited what Peter Lynch identified as an action investors should avoid. "It is looking for the stocks with the biggest gains every morning. My money has not been lost just because I did not buy that stock yesterday. Investing begins with taking a thorough look at yourself," he said.
Even so, he proposed a barbell strategy as a portfolio solution for ordinary investors. This would involve allocating half of the portfolio to the AI ecosystem and combining financial stocks with quality companies on the other side. He cited companies with high shareholder-return ratios, such as banks and insurers, as well as companies with strong cash-generation capacity and resilience, including Samyang Foods, Orion, and APR. In the energy sector, he pointed to nuclear power. "For the AI ecosystem to operate, energy must be stable, and nuclear power is the only option that meets that requirement," he advised.
He said investors should take a longer-term view. "In 2028, a Q cycle on the supply side will arrive, with companies selling more at lower unit prices," he said. "If it becomes clear that margins are being maintained steadily at 40% to 50%, a rerating of the stock market could occur," he forecast.
Finally, he said, "Portfolio reshuffling should begin with the October earnings season, and the focus should be on 2028." He added, "Interest rates are rising and there are various issues, but risks serious enough to break the investment cycle remain unlikely." He continued, "For stock investors, the time of the dog and the wolf is the most favorable. We cannot tell whether the distant figure is a dog or a wolf, but if this is a market where it is more likely to be a dog, perhaps the period from this December through next spring will be the time to invest."

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