For a fair portion of my career, I labored in the divorce subspecialty of valuing closely held businesses. These can range from Mom&Pop’s Sandwich Shop up to Cargill, an agriculture conglomerate with $150 billion in annual sales. Figuring out what these companies are worth is art as much as science and, in recent years, the science side of the practice has encountered rough times.

In normal times (note the reference in the caption as well) business values are supposed to track the capacity of the business to make money for investors. Let’s say a family member dies or just drives up the driveway and hands me $10,000. I can stick that money in a money market fund and it will today yield 3.2%. Invested in a publicly traded utility company I would get 3.5% and a chance the stock could rise. I could put it in a 10 year Treasury Bond get 4.75%.  If I got the money a year ago and put it in an S&P 500 index fund, I would have made 19%. That kind of fund has yielded almost 15% per year on average for the past 10 years. The advantage of any of these investments includes liquidity. Call your bank or broker and you can convert to cash in days.

Investors are greedy. Many are not content with the passive gain of 15-20%. They hear about a stock like Nvidia, which didn’t crack $10/share until May 2020 but today trades at $220. They see that and think: “If I had grandpa’s $10,000 in May 2020 and bought Nvidia, that stack would now be $220,000.”  Investors are wading deeper into the waters of “opportunity” investment and eschewing “value” investment. There’s a reason for this. Many of the gold standard companies that once formed the Dow Jones Industrial Average have struggled in this century and some have capsized and sunk. Why not bet the house and see if a couple investments can make you rich.

We live in a day where speculation and consolidation are prized as a means to create “value.” My newsfeed crackles with invitations to buy gold, silver and crypto even though those commodities have not been doing well in 2026.

To show you the length to which people are investing on hope rather than expectation we offer an article from the Wall Street Journal on October 27. It seems that a young genius who finished Columbia University at the head of his class at age 19 had a vision of using AI to extract resources and colonize other planets. Heady stuff. He worked for Sam Bankman Fried and Open AI, then published 165-page paper titled “Situational Awareness.” This opus became the basis to form a fund that built around our now 24 year old wunderkind which attracted $45 billion in capital. The capital was deployed to acquire stock or companies in the AI supply chain.

In July of this year, word circulated in the AI world that the Chinese might well be ahead of western evolution of AI technology.  Tech stocks, many acquired on margin, plummeted and the new fund scrambled for cash to meet the margin calls. Those stocks have largely recovered but the bloom has fallen from the rose, and the SEC is investigating the transactions undertaken during the July hailstorm of margin calls and liquidations. Situational Awareness, star AI hedge fund that nearly imploded, now being probed by the SEC | TechCrunch . Core positions held by the fund declined 30-50% and margin calls bled the cash the fund had such that the $45 billion invested had reportedly declined to $10 billion at one point.

Needless to say, twenty-something rock stars like Bill Gates and Mark Zuckerberg built empires which have survived and prospered. We all can read about folks who were early investors in Microsoft, Meta and Amazon who now sail the seas in 400 foot ships. But the business valuation world is erected upon normal earnings yielded by reliable sales or service-based revenue. A hedge fund is at the opposite end of the investment spectrum. The normalized goal is putting runners on base and building a winning combination of runs. Hedge funds swing for the fences and care little for the day to day of what’s on the field.

To be clear, hedge funds are not ordinary businesses but investment portfolios. But in the past decade we witnessed ordinary businesses sell for grossly inflated values because hedge funds wanted to roll up a bunch of funeral homes, HVAC repair services, telehealth outlets and storage facilities and offer them to the public as stock investments. Results have been mixed and investors tend to be skittish.

Since 2001, there have been only 4 years when stocks lost money. A decade ago publicly traded stocks were seen to produce 8-9% returns overtime. Those risking the small business world were looking for 20-25% returns. With stocks now yielding 15-20% returns, investors in small businesses are searching for higher yields. Thus, a typical small business sandwich shop like Jersey Mikes can go public when the share price is more than 225x earnings. McDonald’s, Burger King and Wendy’s are selling for 12-21x earnings. Chipotle is 35x.  Small Mom & Pop businesses like sandwich shops sell for far lower multiples because they are not as well established, don’t trade in a public market and don’t typically have the transparency which SEC filings require. In a word, the small business world has become weird in terms of how to value closely held businesses where you can’t just tell your stock broker to sell. And that makes divorce valuation a challenge.