Beyond the Numbers: Uncovering Hidden Value via Legacy Projection
Highmoon Capital originally developed Legacy Projection as an analytical tool to better understand and model the behaviors of highly volatile stocks. As a company founded on the principles of value investing pioneered by Benjamin Graham and Warren Buffett, we recognize that the ideology of value investing must evolve with the changing market conditions. Assessing a company’s revenues, earnings, projecting future growth, etc is no longer viable. Value has come to mean more than just the actual performance of a company. It is the growth assessment of the executive, the product the company is building, quality of the work environment and its employees.
In recent years, the stock market has undergone a significant transformation due to several factors, including the rise of mass retail investors, the Federal Reserve's quantitative easing policies, and the emergence of meme stocks. As a result, the market's behavior has changed irrevocably. The traditional method of valuing stocks based solely on numerical analysis has become saturated and less profitable due to the widespread adoption of this practice. To adapt to these changes, we have shifted our focus to a behavioral finance-based fundamental analysis technique that we call Legacy Projection. Rather than solely relying on numerical analysis, Legacy Projection assesses the value of a company's stock based on the quality of its leadership. By analyzing the behavior, past performance, and decision-making processes of a company's executives, we can more accurately assess the company's long-term potential and future growth prospects.
Tesla, a promising startup, went public in 2010, but prior to 2020, the company had no revenue and was on the brink of bankruptcy. Despite these challenges, Elon Musk, considered by some to be a visionary albeit eccentric entrepreneur, persevered in tackling one of the toughest industries in the world. While his potential was not initially realized, valuing Tesla based solely on traditional fundamentals would have caused many investors to miss out on the historic bull run the company experienced in 2020. It is therefore crucial to understand how a product is developed and the reasoning behind an entrepreneur's motivation in order to accurately evaluate a stock's true value and potential.
Our Legacy Projection analysis methodology is designed to model executives, investors, traders, and consumers who have the potential to affect stock prices. Drawing inspiration from Joseph Campbell's Hero's Journey, we use this as a template to match these individuals with historical and literary figures to identify commonalities. By projecting where a CEO's current state of being resides and comparing it to a hero's journey, we can understand whether they are self-sabotaging the stock price to build momentum, motivation, or character, or if they are struggling with a crashing stock price as their first trial to achieve peak excellence in the short term. While literature may be viewed as fantasy, we believe it is highly influential in shaping the aspirations of romantics, such as tech visionaries and investors/consumers who follow them.
As Tesla reached its all-time-high, we began to suspect that Elon Musk would retire as CEO of the company in the near future. While he has not retired as of 2023, empirical evidence, such as his weight gain, suggests that his meteoric rise may not have been his first trial and that he could be at the end of his hero's journey. Both scenarios suggested an imminent crash in the stock price, and we believed that the most advantageous strategy was to exit our Tesla position at the same time Elon Musk decided to exit in 2022, despite the massive hype surrounding the CEO and the company at the time. This was a difficult decision, and we acknowledge that we may still be wrong and that the stock price may recover. As such, we continue to assess and trade TSLA on any volatility.
The Legacy Projection model has demonstrated exceptional efficacy in analyzing meme stocks and cryptocurrencies, which lack traditional measures of valuation and are primarily driven by emotional sentiment. To assess market trends, we conduct comprehensive survey of social media such as Wallstreetbets on Reddit, enabling us to identify key shifts in trading activity. Last year, utilizing this approach, we were able to generate returns of over 700% from Dogecoin, ultimately selling at its peak based on the a Wallstreetbet meme image featuring 300 Spartans with meme dog faces fighting the Persians. The movie's climax depicts the heroes' tragic fate, and we were able to leverage this narrative to make a profitable decision to sell at the optimal moment. We believed that, similar to the heroes' fate, every "hodler" would eventually experience a downturn in the market. This allowed us to capitalize on the trend and make an informed decision based on our analysis of the narrative.
In addition to utilizing movie narratives, we employ a variety of sources to analyze market trends and make informed investment decisions. For example, we have successfully leveraged the Book of Exodus narrative to analyze Ark Invest, the Planet of the Apes storyline to understand AMC, and Japanese video games to gauge Japan's deep sentiments towards the West, among other sources. These sources offer unique insights into the true direction of stock prices and market trends, providing a significant advantage over more traditional approaches. By uncovering valuable insights from obscure sources, we can effectively predict the direction of any stock price that we have in focus. This approach has enabled us to capitalize on market trends and generate exceptional returns.
We understand that in the financial industry that no single strategy can withstand the test of time indefinitely, as market conditions are constantly evolving. As such, our team remains highly adaptable and continuously innovates to discover the next successful strategy. By remaining flexible and adaptive, we can continue to meet the evolving demands of the financial landscape and deliver effective investment strategies for our clients.
