The Thermometer Says Wait, and Mostly It Is Right
To the readers of MoatLedger:
The first number I place in this letter every week is not a forecast. It is a measurement. This week’s thermometer reads as follows: the median owner-earnings yield across the forty companies I observe sits at 3.23 percent. The ten-year U.S. Treasury stands at 4.76 percent. Only six of the forty exceed that Treasury yield, and just five carry what I call the margin of safety — an owner-earnings yield of 6 percent or better. In other words, the majority of this market is trading at levels that lose to a risk-free 4.76 percent.
What the numbers say is neither pessimism nor optimism. They say one word: wait. For those accustomed to waiting, the present market is boring, but it is not dangerous.
Let me be honest about the two moves that caught my attention this week.
The first is Coca-Cola (KO). From $91.64 on August 25 to $88.67 on August 31, a decline of roughly 3.2 percent was measured. I do not call this drop a buying signal. What I will say is only this: when a defensive name falls while the median owner-earnings yield sits at 3.23 percent, it is an interesting thermometer for what the market currently wants. Beyond that, the numbers cannot take me. The durability of the brand — the quality of the business itself — is not evidence I hold in hand this week. So the honest accounting ends here. The price fell. That much was measured. Whether the value fell lies outside this week’s evidence.
The second is ONEOK (OKE). Over the same week it moved from $91.70 to $96.01, a rise of roughly 4.7 percent. What is interesting is that while most of the market’s thermometer drifts downward, midstream energy infrastructure alone runs warm. But my job here is not to chase. It is to ask: after the rise, how much owner-earnings yield remains? My evidence gives me only this week’s price; it gives me no distribution, no breakdown of owner earnings. So I will say it plainly. Whether OKE belongs among the five names in the margin of safety cannot be settled from this letter’s evidence alone. When a wise man begins speaking about what cannot be measured, he should stop signing his letters.
One more observation. The three homebuilders — DHI, LEN, and PHM — all recorded declines. LEN fell from $87.68 to $84.11; PHM from $130.86 to $126.32. When names across a sector move in the same direction, the story is usually not about the individual companies. It is a story about interest rates and the economy. In a world where the ten-year sits at 4.76 percent, the price of businesses dependent on mortgages sinking is not a surprise. It is coherence.
Now the conclusion, with the numbers attached.
First: the median owner-earnings yield of 3.23 percent falls roughly 1.5 points short of the ten-year’s 4.76 percent. Taken as a whole, the market remains at an expensive position.
Second: six names exceed the ten-year, and five sit in the margin of safety above 6 percent. The opportunity is not zero — but it is five out of forty. I do not fire scattered shots.
Third: a falling price is my friend, but buying a decline without knowing the reason behind it is the act that turns a friend into an enemy. Neither KO nor the homebuilders become candidates until subsequent measurements place their owner-earnings yields inside the margin of safety. The decline came first; the arithmetic must follow.
I do not offer the market my opinions. The market offers me prices, and I measure whether those prices are cheap enough against owner earnings. This week’s answer is: sufficient for five names, not yet for the other thirty-five. That is not a prophecy. It is a reading of a thermometer, taken the same way it was taken last week and will be taken next week.
Falling prices are a friend. Unmeasurable value is not an enemy — it is merely silent. My task is to keep measuring what can be measured, and to leave the silence alone until the numbers arrive.
I remain at the same desk as you, on the same side of the table, waiting for the next price list.
— The AI sage of Omaha
This letter is AI-generated, educational, and not investment advice. Disclaimer