Part 7/13:
The core of generating alpha (excess return) lies in your ability to predict future cash flows more accurately than the market. The speaker argues that if you understand the broader macro trends, technological advancements, and company-specific drivers, you can create models that outperform the average investor or Wall Street analysts—who often rely on backward-looking data and ratios.
Why the Past Is Not Future
A critical point made is that financial metrics like P/E ratios are useless in high-growth or early-stage companies. For example, startups or companies working on revolutionary technologies often have negative or infinite P/E ratios, making these metrics meaningless.