Unconventional wisdom: The latest market obsession investors can ignore
Investors are constantly pressured to act but research suggests that knowing what to ignore is just as important as knowing what deserves your attention.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: The latest market obsession investors can ignore
Based on personal experience – both as an investor & an expert witness – rarely do more than three or four variables really count. Everything else is noise.
— Martin Whitman
There has been a good deal of handwringing over the failure of the Firmus IPO. If you’ve been following the coverage you may believe it is an indictment of the Australian share market.
I have a different view. I think it is largely noise and will have little impact on most Australian investors.
Yet the breathless media coverage does speak to a larger truth about investing. Investors face pressure to draw profound lessons from every market event and are overly influenced by news stories – especially those on the front page.
Research by Shiller, Goetzmann, Kim and Akerlof showed that people generally overestimate the risk of a share market crash if it was frequently mentioned in the news. Investors too often act on these perceptions and hurt their outcomes.
A framework for ignoring the noise
Success requires a filter to quickly decide what information contributes to achieving your goals and what can be ignored.
Investors must classify each headline. Is this information that will meaningfully contribute to your outcomes or is it simply noise?
If you overestimate the importance of each piece of data or news it is likely you will trade too much. And there has been a drumbeat of academic research showing the perils of overtrading.
My colleague Shani Jayamanne worked with portfolio tracking platform Sharesight to explore the actions taken by over 90,000 Aussie investors and the impact on their performance.
In the 2025–26 financial year, investors who made no trades recorded a median portfolio return of 11.99%. For investors who made more than 100 trades, the median return was 9.64%.
These are both extremes but in the last two financial years the more an investor traded the lower the median return.
There is no ideal amount of trading and these high-level figures don’t reveal the goals and strategies of the individual investors making these decisions. However, I believe we can deduce several high-level lessons from the data.
The ASX was open for 254 days in the 2026 financial year. Close to 6.50% of the investors in the study believed they had tradable information at least every 2.54 days the market was open.
Their security selection skills did not lead to better results. Nor did those of the other frequent traders. This may have been a result of investors confusing noise for signal.
Transaction costs which lower returns impacted returns but after-tax outcomes were not measured in the data. In a rising market it is likely capital gains taxes further detracted from after-tax returns.
Why the failure of the Firmus IPO may just be noise
The narrative associated with the Firmus episode is there is something inherently wrong with the Australian market. The implication is Australian investors are being hurt by this.
The US and Australian share markets are very different and there is credible argument that many of the cutting-edge companies are listed in the US. But Australian investors have the luxury of easily investing in global markets and crafting a portfolio that suits individual needs.
There is also reason to believe that the celebrated recent and upcoming AI related IPOs in the US may not be universally positive. Fund manager GMO released a report titled A catalyst for the AI bubble break which speaks to the potential negative consequences.
I’m not in the bubble prediction game. But I do like looking at market history to provide context for what information may be useful and what can be ignored.
The premise of GMO’s report is a trend I’ve observed throughout market history. The summary is that investors should think beyond supply and demand imbalances in the real economy and focus on financial market supply and demand.
In this case supply is equity and debt issuance and demand is the ability of the capital markets to support these capital raisings. The Firmus IPO failed because there wasn’t enough demand for the proposed supply of equity.
The flood of share issuance doesn’t end with the IPO. It happens later when the lock-up period ends and insiders and pre-IPO funders sell their shares. The Firmus IPO was only floating around 16% to 18% of the target valuation of the company.
The game here is simple. The higher the gap between the IPO valuation and the previous private valuations of a company the more the insiders profit. For instance, in April Firmus was valued at $8 billion. In August it was $15.5 billion. The IPO valuation was $44 billion.
It is the market’s ability to absorb the post-IPO selling that GMO focuses on in their report. They argue that for the AI market boom to continue a constant flow of new money is needed to support the share prices of AI related companies.
According to GMO, historically over the last 45 years for every 1% increase in equity supply the market drops 4% over the next year. Given the expected supply increase in the US market with upcoming IPOs GMO expects returns 20% below average over the next 12 – 18 months.
Final thoughts
The point is not that the GMO report is a harbinger of things to come. It isn’t that we dodged a bullet with the failure of the Firmus IPO. It is simply that markets are complex and focusing on one data point or narrative to drive decision making is perilous.
GMO admits as much in their report and cites geopolitical risks, future earnings growth and the maturation of the AI business model as additional contributors to upcoming market returns.
There is also evidence that investors are looking at the AI profit surge with a degree of scepticism. Despite strong returns S&P 500 forward price to earnings multiples have come down this year as the chart below indicates.
One interpretation is investors are rationally seeing the profits from the AI infrastructure buildout as temporary and preparing for a future drop-off in earnings.
The best thing you can do in any market environment is to evaluate each new data point within the context of what you are trying to achieve.
I wouldn’t personally invest in a company like Firmus. The debt levels, uncertainty about the timing and levels of future earnings and the highly competitive operating environment don’t fit my investment strategy.
If you do want exposure to AI data-centres there are plenty of opportunities. Our analysts estimate there are over 200 companies operating in the same space.
You can choose between pure play companies like CoreWeave or diversified companies with exposure to AI data-centres like Amazon, Microsoft, Alphabet, and Oracle.
Any investment is simply a tool to help you achieve your goals. Pick the tools fit for the job you are trying to perform. Set a high bar for figuring out which information and data is relevant to your strategy and be thoughtful about when you take action in your portfolio.
Questions, comments or restaurant recommendations? I can be reached at [email protected]
Upcoming webinar
Do you have plans during November on Tuesday evening? I will be doing a free upcoming webinar series in November. Sign-up for relevant sessions using the links below:
- 3 November at 6pm AEST: Session one: Understanding the maths of retirement
- 10 November at 6pm AEST: Session two: Estimating how much you will spend in retirement
- 17 November at 6pm AEST: Session three: How much money you need to retire
- 24 November at 6pm AEST: Session four: Figuring out your retirement asset allocation
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What I’ve been eating
Gyukatsu is the lessor-known cousin of tonkatsu. Beef is substituted for pork but both are prepared in similar ways. Gyukatsu’s roots trace back to the Meiji era when after centuries of isolation Japan opened to the world. The Europeans who showed up were breading and frying meat so the Japanese adopted the same technique for Gyukatsu.
Pictured is the A5 Miyazaki Wagyu Sirloin from Gyukatsu Kyoto Katsugyu in the Sydney CBD. The beef is flash fried which left the center rare and tender which served as a nice contrast to the crisp exterior. It was served with rice, shredded cabbage, and miso soup. Most restaurants can be ignored. This isn’t one of them.
