Fantasy Land
“a bird in the hand is worth two in the bush” - Aesop’s Fables
Aesop’s fables taught us that “a bird in the hand is worth two in the bush”. This principle dates back thousands of years and underpins our basic understanding of profitable investment. A dollar today is worth more than a dollar tomorrow for two reasons. First, we get to use that dollar now vs later. Second, there is always uncertainty in the future. That future dollar may not come to fruition. After that comes considerable debate (for most investment opportunities) regarding how many future birds there may be, as well as the risk associated with finding out. Warren Buffett further explains how this famous parable pertains to investing here.
Needless to say, financial markets have strayed far from this sage advice, drifting far into fantasy land. At Aurora, we believe that the lowest-hanging fruit in being a good bird counter is to simply limit silly mistakes. You don’t need to be brilliant all the time, but you must avoid unforced errors. Market participants seem to be trapped in some sort of game where everyone pretends as if birds are everywhere. We all know this is false. But so long as everyone plays along, the fantasy land of many birds feels real. At the risk of mixing my metaphors, at some point the tide is going to go out, and I’m afraid many investors are swimming naked. Let me provide some examples:
Fartcoin – The current market capitalization of Fartcoin exceeds $1B. That’s right. Financial markets are so efficient that over $1B has been “invested” in a joke. Are there many farts in the bushes? And what is the value of said farts? I am no fan of crypto, but even those who are will hopefully see the ridiculousness here. That’s $1B wasted on a joke that could be put to productive use.
Unrealized Losses in the Banking Sector – There are good reasons why banks are not subject to mark-to-market accounting. We don’t want our banks going bust every time interest rates rise. However, that doesn’t mean it’s not real. Banks are sitting on massive unrealized losses due to an increase in interest rates, which is creating vulnerabilities in the financial system. If a bank marks these as held-to-maturity, investors pretend the losses aren’t real. As an example, Bank of America has over $93B in unrealized losses marked held-to-maturity as of the quarter ending June 30, 2025. For context, their tangible common equity (balance sheet net worth excluding goodwill) is about $205B. So about 45% of their capital is a legal accounting mirage. Those birds flew away, but they promised they’d return. According to the chart below from the government office of financial research, unrealized losses in the banking system sit around $500B.
Palantir’s Phantom Free Cash Flow – This business has captured the imagination of many investors with its breakneck revenue growth, coming in at an impressive 48% year over year in the latest quarterly report. I see two potential problems here. First, there is a good bit of deception about the current cash flow. By paying employees with stock (a non-cash expense), companies can artificially increase their cash flow. For example, in the 2nd quarter of 2025, Palantir claims roughly $569M in free cash flow (the amount of cash a business produces after making investments in things like equipment or buildings). However, Palantir gave about $160M in stock to employees during the quarter. They also assume that the $35M in payroll taxes they paid associated with stock-based compensation was not a cash expense. The true free cash flow would be closer to $374M by my calculation. This difference matters because every share that is issued shrinks the % ownership for investors. Your slice of the pie gets smaller. That’s today’s birds. Tomorrow’s get really interesting.
Investors value the company at over $400B. As of this past quarter, the true annualized free cash flow is running at about $1.5B. To justify that price, one must assume that Palantir is able to grow at a 50% rate for the next decade before reaching maturity (reaching $86B in cash flow by the mid-2030s). It is certainly possible, but there is considerable risk if they fall short.
AI Hyperscaler Depreciation Shenanigans – When a company buys property and equipment, that is an immediate cash cost. However, they tend to spread that expense out over several years through an item called depreciation, which tends to coincide with the item’s useful life. One of the tricks of the accounting trade is that one can increase paper profits by extending the assumed life of an asset. The AI hyperscalers have pulled this “profit” lever with their Nvidia chips. Most recently, Meta (parent of Facebook and Instagram) decided that its chips now last 5.5 years rather than 4.5 years. This change alone will juice their stated profits considerably in the coming years. But do they actually last longer? Will they not be obsolete much faster than that? Nvidia, after all, is now expected to release a new and better chip every year, hastening obsolescence. If it turns out that these accountants were a little too creative, Meta and others will have to recognize billions of losses in the coming years.
Bitcoin Treasury Companies – Several stocks have gained attention and investors lately by using their cash to buy bitcoin. They often sell their stock or, worse, they borrow, to buy more bitcoin. Investors happily buy up shares of MicroStrategy and others in this frenzy. If the investing (or more accurately, gambling) public believes in bitcoin, why are they buying these companies rather than the underlying crypto? I don’t see much value in either one, but there is a strange contradiction here that I find very peculiar. If a company is selling its shares to buy something else, that’s a signal that they believe the other thing is more valuable. I generally prefer a company that is pretty careful about throwing its shares around.
If you thought your stock was underpriced, you’d be buying it rather than exchanging it for something else. Alas, today’s market is apparently a fantasy land where the birds are made up and the bushes don’t matter. If you’ve lost it, find your bathing suit because that tide won’t stay in forever.
To learn more about our portfolios and approach, please reach out to us or visit www.auroramgt.com
Invest Curiously,
Austin
Austin Crites, CFA
Chief Investment Officer
Aurora Asset Management/Aurora Financial Strategies
Austin Crites is the Chief Investment Officer of Aurora Asset Management, an Indianapolis-based subsidiary of Aurora Financial Strategies which is located in Kokomo, IN. He can be reached via email at austin@auroramgt.com. Investment Advisory Services are offered through BCGM Wealth Management, LLC, a SEC registered investment adviser. Registration with the United States Securities and Exchange Commission does not imply that BCGM or any of its principals or employees possesses a particular level of skill or training in the investment advisory business or any other business. This blog does not constitute advice. This is not an offer to buy or sell securities. Advisor is not licensed in all states. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. BCGM Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Clients may own positions in the securities discussed.