There was a time when a billion dollars sounded like an absurd amount of money. Then came trillion-dollar companies. Now even a trillion dollars is beginning to look like a routine market statistic.
Semiconductor companies are moving into valuation territory that would have seemed hallucinatory to earlier generations of investors. Discussions about Elon Musk’s wealth increasingly resemble conversations about the gross domestic product of medium-sized countries.
Analysts raise target prices by hundreds of billions of dollars with the calm assurance of priests interpreting scripture.
At some point, one begins to wonder whether modern finance requires less accounting and more theology.
Fortunately, India solved this problem a thousand years ago.
Long before investment banks invented discounted cash flow models, and long before equity analysts discovered the joy of changing target prices every fortnight, Indian philosophers were debating the nature of reality itself. Their insights may prove surprisingly useful in understanding today’s stock market.
Indeed, the debate between Dvaita, Advaita, and Vishishtadvaita may explain modern valuations better than many brokerage reports.
Price, Value and Belief
The Dvaita school, associated with Madhvacharya, insists that distinctions are real.
In market terms, this leads to one simple proposition: price is not value.
The Dvaita investor looks at a trillion-dollar valuation and immediately reaches for a calculator.
The stock market says the company is worth a trillion dollars.
The Dvaita investor says: “Interesting. My model says $300 billion.”
The market replies: “Nobody asked.”
This investor believes in fundamentals, cash flows, earnings and all those quaint concepts that populated finance textbooks before artificial intelligence became a line item capable of adding hundreds of billions of dollars to market capitalisation.
To the Dvaitin, a stock trading at 100 times earnings is evidence not of prosperity but of collective intoxication. Otherwise, how can the value of a demerged business suddenly change? Can the whole really be different from the sum of its parts?
Gestalt has entered Dalal Street.
Yet there is a problem.
The market can remain irrational longer than the Dvaita investor can remain employed.
For years, these faithful disciples wander through financial deserts carrying spreadsheets like sacred scriptures, waiting for the eventual convergence of price and value.
Sometimes they are vindicated. At other times, retirement arrives first.
Then comes Advaita.
According to Adi Shankaracharya, apparent distinctions are ultimately illusory.
Applied to finance, this becomes: price is value.
If a company is worth a trillion dollars, it is worth a trillion dollars because the market says so. Who are you to argue?
After all, what is a valuation model except one person’s opinion wrapped in Excel formulas? The market, by contrast, aggregates millions of opinions.
Therefore, according to the Advaita investor, questioning market value is akin to questioning reality itself.
The Dvaita investor points at the earnings multiple.
The Advaitin points at the stock price.
The Dvaitin points at the balance sheet.
The Advaitin points at the stock price.
The Dvaitin points at basic arithmetic.
The Advaitin points at the stock price.
Eventually, the Dvaitin gives up.
The Advaitin buys another index fund.
This philosophy has enjoyed remarkable success because active managers, despite armies of analysts and oceans of coffee, often struggle to outperform the market over long periods.
Perhaps the market is Brahman after all.
Manufactured Reality
Then there is the middle path of Ramanujacharya’s Vishishtadvaita.
Price and value are different, but they are connected.
This turns out to be uncomfortably relevant in the age of trillion-dollar valuations.
Suppose a company’s share price doubles. Traditional valuation theory says nothing fundamental has changed. Reality increasingly disagrees.
A soaring share price enables companies to raise capital cheaply, attract elite talent, acquire competitors and dominate entire industries. Inclusion in an index can then create further demand for the stock, giving size its own momentum.
In other words, a high valuation can create the conditions necessary to justify a high valuation.
The bubble begins manufacturing its own fundamentals.
This is where modern markets become truly fascinating.
A company receives a lofty valuation because investors expect greatness. The lofty valuation helps the company become great. That greatness validates the valuation. The valuation then rises further.
The snake is not merely eating its tail.
The snake is issuing stock options to its tail.
Cosmic Valuations
The most remarkable feature of today’s markets is not that valuations are high. Valuations have always been high somewhere.
The remarkable feature is the scale.
A trillion dollars used to be an economic statistic. Today, it is a personality trait.
When individual fortunes approach levels once associated with sovereign governments, language itself begins to malfunction.
Traditional valuation metrics resemble medieval measuring tapes trying to quantify galaxies.
Price-to-earnings ratios become philosophical statements.
Discount rates become matters of faith.
Analysts speak confidently about terminal values extending decades into the future, as if they possess a direct communication channel with history itself.
One suspects that many valuation reports should carry a disclaimer: forward estimates may contain traces of prophecy.
Financial Theology
Modern finance increasingly resembles religion.
There are believers. There are heretics. There are sacred narratives. There are apocalyptic predictions. There are annual pilgrimages to earnings calls.
And there are prophets who correctly forecast one market event ten years ago and have been dining out on the achievement ever since.
The Dvaita camp warns that valuations have detached from reality.
The Advaita camp insists that valuations are reality.
The Vishishtadvaita camp argues that reality itself is being altered by valuations.
Curiously, all three camps occasionally appear correct.
This is deeply unsatisfactory for those who prefer certainty.
If the ancient Vedantic masters were transported to today’s markets, they would probably recognise the arguments immediately. Only the numbers would surprise them.
A philosopher accustomed to contemplating the infinite might still struggle to comprehend a market where a social media post can move hundreds of billions of dollars, and where discussions of trillion-dollar fortunes occur before breakfast.
Perhaps that is the ultimate lesson.
The modern market has not merely become a mechanism for allocating capital. It has become a grand metaphysical experiment.
The Dvaitins search for intrinsic value.
The Advaitins worship market value.
The Vishishtadvaitins study the mysterious dance between the two.
Meanwhile, somewhere on Wall Street, an analyst upgrades a stock whose valuation already exceeds the gross domestic product of several nations and raises the target price by another 20%.
Not because earnings have changed.
Not because cash flows have improved.
But because, in the deepest and most profound sense of modern finance, everyone else believes everyone else will believe.
And in the age of trillion-dollar dreams, that may be the closest thing markets have to ultimate reality.
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