September 2026 Random Ramblings
Summary
Andrew Walker’s central market call is that equities have not ignored higher rates, but still do not look fully adapted to them. The 10-year yield moved from 4.2% at the beginning of the year to 4.6% at August-end and 5.1% by September 24, while the S&P 500 remained near record highs. Refinancing lags and slow portfolio reallocation could delay the impact, but “the financial burden is coming your way.”
The refinancing calendar may matter more than today’s apparently healthy free cash flow. Companies termed out debt during 2015-22, insulating earnings when rates first rose; debt issued around 2021-23 may roll between 2028 and 2031. A company refinancing 3.5% debt at 8-10% could discover that today’s cash generation materially overstates its future economics.
Higher rates have reset the arithmetic of special situations, even when investors’ instincts have not caught up. A guaranteed $100 merger consideration received in one year is worth roughly $95 at a 5% interest rate—and less after allowing for break and liquidity risk. Investors trained when “capital is free, time value is low” may mistakenly see a stock at $94 as an unusually wide spread.
The disappearance of prolonged bear markets could reflect stronger safeguards—or a system accumulating hidden fragility. Circuit breakers, rapid Federal Reserve support, and less cyclical business models may explain why the global financial crisis, COVID correction, and 2025 tariff scare reversed relatively quickly. Walker nevertheless wonders whether repeated rescue creates a market that can open down 5% and, after “wire after wire goes off,” be down roughly 20% by lunch.
Great investment records may disproportionately belong to overconfident survivors rather than proving overconfidence is optimal. Concentration and leverage give the overconfident investor the variance required to reach the top, while failed counterparts disappear from view; Archegos is the stark specimen of accumulated success ending near zero. Confidence also attracts LP capital, further strengthening the selection effect.
Outgrowing a mentor is a natural consequence of accumulating judgment, not necessarily a repudiation of the mentor. Ian Cassell’s account of separating from Skip leads Walker to Buffett moving beyond Ben Graham and to the warning that certainty can initially look like wisdom: some mentors are “often wrong, never doubting.” Walker’s practical response is to journal market and portfolio views so he can compare what he thinks now with what he actually thought years earlier.
Deep dive
1. Rising rates are exerting gravity with a long fuse
Walker’s starting dislocation: the 10-year yield rose from 4.2% at the beginning of the year to 4.6% at August-end and 5.1% by September 24, yet the S&P 500 remained around all-time highs and the major indexes were up roughly 12-13%. “Interest rates are financial gravity,” but the apple has not visibly fallen.
His historical comparison comes from valuation work around 2011, when long rates were near 2%. Companies could borrow around 4% while equities appeared to yield roughly 10%, suggesting an excessive equity-risk premium; the subsequent decade brought strong earnings but also substantial multiple expansion as markets adjusted to cheap capital.
One possible lag is behavioral: savers do not instantly redirect marginal dollars merely because bond yields become more attractive. Walker concedes that large asset managers, rather than households, control much of the money, so consumer inertia may be an incomplete explanation; the point is a hypothesis, not a market-timing claim.
The more concrete lag sits in corporate liabilities. Companies extended maturities during 2015-22, but debt issued around 2021-23 may refinance during 2028-31; replacing 3.5% coupons with 8-10% debt would reduce future free cash flow and alter capital allocation. The market should discount that immediately, yet Walker wonders whether it “slowly adapt[s] to gravity.”
2. Elevated indexes conceal widening stress underneath
The surface remains healthy—economic growth and profits are good—but Walker sees a narrowing margin of safety as prices stay elevated and rates rise. His deliberately hedged conclusion is not that a crash is imminent; it is that “there’s a lot of volatility on the horizon” and the financial burden has yet to arrive fully.
Stress is already visible in rate-sensitive pockets: leveraged small caps, the Russell 2000, and housing have struggled, while biotechnology first fell sharply and then recovered strongly. The dispersion matters because “when markets are at all-time highs, there’s always a crash somewhere.”
Housing is his clearest specimen. Smart investors have begun revisiting builders, and Berkshire’s purchase of 200 million Lennar shares caught his attention with the company trading around tangible book value. He treats that position as small for Berkshire and not dispositive, but notes that depressed housing names possess several potential operating and valuation levers.
3. Special situations now demand an explicit cost of time
Walker’s merger-arbitrage arithmetic is blunt: if a transaction pays $100 in one year and rates are 5%, a literally guaranteed claim should trade around $95 today. Because no deal is guaranteed, the correct price must sit lower still to compensate for closing probability, corporate liquidity, and the downside if the transaction breaks.
That makes a supposedly obvious $94 opportunity much less obvious. After discounting the $100 consideration and incorporating break risk through position sizing and Kelly-style upside/downside analysis, the quoted price may already imply roughly a 90-95% probability of completion rather than an extraordinary return.
The contrast with 2015 is formative: when rates were near 2%, a very safe $100 deal might trade at $98 or $99 because “there wasn’t much money measuring time.” Generalists who came of age during 2010-20 may still carry the embedded assumption that “capital is free, time value is low”; Walker says pod shops are generally better at estimating cost of capital, making this more a generalist-versus-specialist event-investor issue.
Walker connects regime conditioning to Buffett launching his partnership despite warnings from his father and Ben Graham that the Dow had never been higher. Their caution reflected the market that shaped them; Buffett believed profits and circumstances had changed. The broader lesson is that inherited assumptions can remain invisible long after the underlying regime turns.
4. Shorter bear markets may be producing a more brittle system
Walker contrasts modern reversals with Black Monday, 1929, the Great Depression, and the brutal 1972-74 decline. His emblem of 1974 is Buffett’s line about feeling like “an oversexed man in a harem,” swapping stocks at five times earnings for alternatives at four times because bargains were everywhere.
Even 2000-02 was not uniformly bearish: expensive dot-com stocks collapsed while many value names performed well, helping create reputations that endured for decades. For the global financial crisis, Walker says the market peaked in October 2027 and describes the episode as running from July 2000 to March 2009—“about 9 months”—an internally inconsistent dating he does not resolve. COVID’s fall lasted about two months, and the 2025 tariff panic less than one.
Possible explanations include circuit breakers, expected Fed liquidity, fiscal support, and a corporate mix less dominated by deeply cyclical steel and automobile businesses. Walker offers no firm answer: “Maybe we just live in a wonderful world, we’ve been lucky,” or perhaps falling rates from the early 1980s through 2022 continually supported valuations.
The antifragility counterpoint is the uncomfortable one. Repeated intervention may suppress small failures while making the system increasingly brittle; zero-day options and other market-structure features could amplify the eventual break. Walker disclaims expertise but imagines an opening down 5% cascading toward 20% by lunchtime—and wonders whether rising rates now make sustained bear markets more plausible.
5. Confidence creates legends, casualties, and eventually distance from mentors
A friend’s taxonomy divides investors into the overconfident and those with imposter syndrome. Walker places himself in the latter camp: even after doing the work, he must remember, “You are an expert,” because “there’s no secret expert who knows everything” waiting to reveal the real answer.
Yet the great investors he can readily name appear highly confident, sometimes overconfident. Reading about Buffett in his twenties and thirties complicates the humble-Omaha image; episodes involving GEICO and Salmon Brothers also remind Walker how often precarious situations turned favorably. Alternative outcomes could have produced very different legends.
Survivorship bias supplies his leading explanation. The overconfident investor embraces concentration, leverage, or both, generating the variance needed for spectacular success—and spectacular disappearance. Bill Hwang’s concentrated, increasingly leveraged Archegos bets are the clear example: success compounded until it effectively collapsed overnight. The same confidence can also attract the LP capital required to become prominent.
Ian Cassell’s Stock Picking gives the mentorship version. Cassell learned from Skip, then developed beyond Skip’s fixed style; similarly, Buffett moved beyond Graham. Walker says Graham apparently gave a speech sometime in the 1970s, shortly before he died, favoring simple market-wide rules that, if the account is right, resemble early factor investing. Mentors initially possess “oceans and oceans of knowledge,” but a 20-to-zero experience advantage becomes 20-to-five, their fallibility becomes visible, and “often wrong, never doubting” stops looking like wisdom.
Walker’s unresolved question is whether mentees advance because mentors stop evolving, because students evolve faster, or because previously hidden risk finally surfaces. His practical safeguard is written memory: use the blog and a journal to record market and portfolio thinking, then use ChatGPT to compare today’s beliefs with the views he actually held years ago.