Did You Really Profit Because Your Judgment Was Right?

When investors make money in equities, they often credit their success to sharp insights — a low P/E ratio, strong balance sheet metrics, attractive margins, and so on. But in many cases, especially during a sustained bull market, this is an illusion.

To be blunt: the majority of your gains likely came from monetary easing, not from superior stock-picking.

Markets already know what you think you “discovered.”Whether a stock is cheap or expensive on a P/E basis is trivial information. Everyone can see that. The real question — the only one that truly matters — is:

What will the company’s future cash flows look like, and how certain are those projections?

That is the foundation on which valuation multiples expand or contract. Everything else is noise.

Since the Global Financial Crisis, we’ve lived through one of the longest liquidity-driven bull markets in history. Almost everything went up — not because each business suddenly became exceptional, but because central banks injected unprecedented liquidity and compressed discount rates to near zero.Yet many investors mistakenly attribute these gains to their “analysis.”

Yes, individual company fundamentals still differentiate stock performance. But the magnitude of monetary easing blurred those distinctions to a degree that few fully appreciate.

And here is the uncomfortable truth:In equity investing, even with hindsight, no one can perfectly explain why they made money.

Returns are always a mix of fundamentals, sentiment, liquidity, and macro forces — none of which can be disentangled with precision.

So if you booked a profit, good. But instead of assuming your reasoning was correct, take the time to reflect on what truly drove the outcome. That humility is what leads to better decisions in the next cycle.