During the bubble, a lack of profits was paradoxically an advantage for tech stocks. It removed traditional valuation metrics like P/E ratios that would have anchored prices to reality. This "valuation vacuum" allowed investors' imaginations and narratives to drive stock prices to speculative heights.

A key behavioral indicator of an overheated market is when investors justify buying stocks with indirect, "bank shot" reasoning, like pitching airlines as a play on weight-loss drugs reducing fuel costs. This stretched narrative suggests prices are detaching from fundamentals.

Market-cap-weighted indexes create a perverse momentum loop. As a stock's price rises, its weight in the index increases, forcing new passive capital to buy more of it at inflated prices. This mechanism is the structural opposite of a value-oriented 'buy low, sell high' discipline.

The startup landscape now operates under two different sets of rules. Non-AI companies face intense scrutiny on traditional business fundamentals like profitability. In contrast, AI companies exist in a parallel reality of 'irrational exuberance,' where compelling narratives justify sky-high valuations.

Companies like Tesla and Oracle achieve massive valuations not through profits, but by capturing the dominant market story, such as becoming an "AI company." Investors should analyze a company's ability to create and own the next compelling narrative.

Investors often invent compelling secular narratives—like a permanent housing shortage or "Zoomers don't drink"—to justify recent price movements. In reality, these stories are frequently post-hoc rationalizations for normal cyclical fluctuations. The narrative typically follows the price, not the other way around, leading to flawed trend extrapolation.

The stock price and the narrative around a company are tightly linked, creating wild oscillations. Investors mistakenly equate a rising stock with a great company. In reality, the intrinsic value of a great business rises gradually and steadily, while the stock price swings dramatically above and below this line based on shifting market sentiment.

The stock market is not overvalued based on historical metrics; it's a forward-looking mechanism pricing in massive future productivity gains from AI and deregulation. Investors are betting on a fundamentally more efficient economy, justifying valuations that seem detached from today's reality.

The era of constant central bank intervention has rendered traditional value investing irrelevant. Market movements are now dictated by liquidity and stimulus flows, not by fundamental analysis of a company's intrinsic value. Investors must now track the 'liquidity impulse' to succeed.