Why Fundamentals Don't Work For "New Economy" Stocks | Jacob Pozharny

Summary

Jacob Pozharny explains why traditional fundamental analysis fails for 'new economy' stocks with high intangible assets, and how Bridgeway Capital Management uses a bifurcated approach combining sentiment analysis for those stocks with classic fundamentals for 'old economy' sectors. He details specific opportunities identified through textual analysis of earnings calls and sentiment shifts, particularly in energy, shipping, and defense stocks disrupted by the 2026 Iran war. Pozharny argues that the best stock-picking opportunities are in mid-cap and small-cap markets outside the US, and describes their market-neutral strategy to generate uncorrelated alpha.

• Traditional fundamental analysis (e.g., price-to-book vs. ROE) breaks down for high-intangible stocks like pharma and software.
• Bridgeway applies sentiment analysis (buy-side and sell-side) for new economy stocks and fundamental analysis for old economy stocks.
• Textual analysis of earnings call transcripts using supervised learning helps identify mispriced sentiment, especially in Asian energy and shipping.
• The Iran war has created significant market dislocations, offering long opportunities in defense stocks (BAE, Northrop) and short opportunities in shipping (Orient Overseas).
• Specific long ideas include BP, Petrochina, Costco, and MRNA due to positive sentiment not yet priced in.
• Specific short ideas include Amazon, Southwest Airlines, and Taiwanese utilities due to negative sentiment not fully reflected.
• The firm focuses on mid-cap and small-cap stocks outside the US where the return spread is up to 8x wider than in the S&P 500.
• The global opportunity strategy is market-neutral, with about 30-40% of alpha coming from the short side due to restricted short availability.
• A mutual fund structure is used instead of an ETF because the strategy requires daily flexibility in short availability, especially in international names.