September 2026 Random Ramblings

Episode Summary

Executive Summary: Andrew Walker’s monthly ramble focuses on how rising interest rates may be slowly reshaping equity valuations, special-situation pricing, and investor behavior. He also reflects on why major bear markets seem shorter, why top investors often appear overconfident, and how mentors shape—but don’t stop—an investor’s evolution.

Main Topics: Rising interest rates as financial gravity (Priority: 5/5): Walker argues that the recent surge in rates should eventually pressure asset prices and corporate cash flows, but markets may be adjusting with a lag rather than instantly repricing. Market resilience and the disappearance of long bear markets (Priority: 4/5): He wonders why prolonged bear markets and crash cycles appear less frequent than in earlier decades, attributing it possibly to Fed support, circuit breakers, and more capital-light businesses. Interest rates in special situations (Priority: 4/5): He explains how higher rates materially affect merger arb and other event-driven trades by increasing the present-value discount on deal consideration. Overconfident investors vs. imposter investors (Priority: 5/5): Walker reflects on a friend’s framing that investors are either overconfident or imposters, and argues that great investors often have strong confidence bordering on overconfidence. Mentorship and investor evolution (Priority: 4/5): Using Ian Castle’s Stock Picker and Buffett/Graham as references, he discusses how mentees often outgrow mentors as their own skill and perspective mature. Self-tracking and journaling (Priority: 2/5): He closes by describing his effort to journal more systematically so he can compare current market views and emotional states with past periods using AI tools.

Key Arguments: Rising interest rates are likely to act like gravity on valuations, but the effect may show up slowly rather than immediately. The market may not be fully pricing in the future refinancing risk that higher rates create for corporate cash flows. Current market strength does not eliminate pockets of pain; small caps, housing, biotech, and some SaaS names are already under pressure. Higher rates change merger-arbitrage math: a deal at 100 with a one-year close can be worth roughly 95 today just from discounting. Many successful investors likely exhibit overconfidence because it supports concentration, leverage, fundraising, and conviction, though survivorship bias hides the failures. Mentors become less impressive over time partly because mentees gain experience and develop their own style, not only because mentors decline. The long era of falling rates may have masked fragility; if that backdrop reverses, markets could become more volatile and produce sharper drawdowns.

Data Points: 10-year Treasury yield, start of year: 4.2% - Walker cites this as the year-opening level before the recent rise in yields. 10-year Treasury yield, late August: 4.6% - Used to show the gradual rise before the more recent move higher. 10-year Treasury yield, current at recording: 5.1% - He highlights this as evidence that rates have risen quickly in recent weeks. S&P 500 year-to-date move: up 12% to 13% - Walker notes broad equity strength despite higher rates. Russell 2000 recent performance: weak over the past month - He says small caps have been especially sensitive to rising rates. Merger arb example: 100 deal price trades around 95 at 5% rates - Illustrates the present-value impact of a one-year time to close. Great Depression market drawdown: stocks down about 33% in a day - Referenced as an example of historic crash severity. Black Monday 1987: markets down about 25% in a day - Used as another example of historic crash intensity. Global Financial Crisis peak-to-trough period: about 9 months - He contrasts this with earlier, longer bear markets. COVID crash duration: about 2 months - He describes this as a very fast drawdown by historical standards. Tariff tantrum duration: less than 1 month - Another example of shorter modern market shocks. Example valuation in Graham-era framing: 5x earnings vs. 4x earnings - Used to illustrate the cheaper pricing investors saw in the 1974 era.

Pivotal Quotes: "Interest rates are financial gravity." — Andrew Walker: Core thesis of the episode: higher yields should eventually pull down valuations and raise the cost of capital. "I think the margin of safety in stocks is just skinnier and skinnier as prices remain elevated." — Andrew Walker: His view on current equity markets despite continued strength in prices and earnings. "I’m firmly, firmly in the imposter camp." — Andrew Walker: His self-assessment in the overconfidence vs. imposter-syndrome discussion.

Implications: Listeners should expect higher rates to matter more over time, especially for leverage, refinancing, and arbitrage spreads. The episode also suggests that conviction helps winners—but can destroy capital when paired with leverage and concentration.