Scarcity and Value…
June 13, 2026
There have been some headline grabbing numbers lately. Scarcity is a powerful condition. The price of a ticket for the Monday Knicks playoff game at Madison Square Garden was $180K to hang with Jerry, Ben, and Timothee on the sidelines, $4K for the cheapest seat in the nosebleed section…for one game! When they lost that game and therefore could not win the title in game four on Wednesday, the prices for that game dropped. Scarcity drives value but that value can be ephemeral.
After its first day as a public entity, SpaceX shares closed at $161, giving the company a value in excess of $2.1 trillion. A company with 2025 revenues of $17 billion, trading now at a multiple of 123 times sales! Elon Musk couldn’t sell SpaceX in its entirety for $2 trillion or anything close to that amount. Still, when only 555 million shares were available today, about 4% of the total number, there was a contrived scarcity. Happy Tesla investors, Elon Musk fans, strong institutional demand, limited supply…scarcity drove the valuation. (And speaking of outrageous numbers, Mr. Musk is now, on paper anyway, the world’s first trillionaire.)
Scarcity in the face of demand is a powerful force. Knick fans have waited 27 years since the last finals appearance (when they were routed 4-1, ironically by these same Spurs), 53 years since the last title. There are lots of Knick fans, huge pent up demand, very limited supply…scarcity driving pricing.
Nothing brilliant here, the idea of scarcity driving price is kind of obvious. So why bring it up? Because scarcity is also what is driving the market averages. The 10 largest companies comprise 40% of the total value of the S&P500 and, with the exception of Berkshire Hathaway, all are tech companies. And of those, only Apple’s size and growth has not been driven by AI. The demand for compute, the tight supply of memory, the desperate efforts to gain sufficient GPU’s from supply constrained Nvidia…scarcity abounds. It is driving prices, and earnings, higher and consequently the market averages as well.
Scarcity, however, is not a permanent condition. If demand changes, or over time is satiated, scarcity is no longer an issue. Maybe chip alternatives are developed, or quantum computing impacts AI usage, or enough data centers are operational, or AI usage becomes more efficient and/or targeted. Whatever…if scarcity is no longer a factor, pricing drops, earnings decline, the market gets a reality check.
Valuations built on scarcity are not stable, often not enduring. Keeping assets parked passively in increasingly concentrated index funds and ETF’s increases the risk of losses when the market suddenly is no longer as concerned about scarcity. Tech stock values are great now and, yes, they may even continue to climb…until they don’t. The market is forward looking, shares moving before the changes in underlying conditions become apparent. Don't overstay your welcome in tech. Now is the time to broaden your holdings, trim your gains and put some of that money to work in areas that haven’t risen so dramatically. Consider some sectors that have been less favored. Invest in companies whose enduring value is not driven by scarcity, whose valuations are more stable and enduring.
Not just talking the talk, Lava Wealth recently trimmed some tech company holdings that had triple digit percentage gains. In one case, after our sale, the shares jumped another 5%. Yet, I didn’t regret the sale. After all, we still held a sizable position, reduced the risk inherent in the very high valuation, and had cash to put to work in other areas or to park in money market funds earning 4%. Bulls make money, bears make money, pigs get slaughtered. Manage your greed.
I am a realist. I have come to understand that mostly the links that I provide to other material go unvisited. With apologies to the few of you that read it (and whose enthusiasm has motivated this maneuver), I am attaching the same link as last time. It is a great story from years back about a clever, novel National Parks Service action that was spectacularly successful. It is also convenient cover for the fact that I did not have something new to pass along. Read it, enjoy...and give the intrepid 'parabeavers' their due.