This past week I had lunch with a young friend, let’s call him Reed, who is building a successful career in the hedge fund world. He is smart, well-educated, engaging and insightful. Apart from all that, however, what struck me was how differently he approaches the investment landscape. Our discussion reminded me of an investment class I had back when I was a graduate student. The class gave repeated emphasis to the importance of diversification… much as I have frequently written about here…

2025 is drawing to a close. It has been another rewarding year for investors. That’s three years running and, surprisingly (to me at least), the overwhelming consensus is that the market will be up again next year. Until very recently, there have been few dissenting voices on that rosy outlook. Even now, resounding bubble talk notwithstanding, the gloomy voices remain the minority…

With less than a month left in the year, it seems likely that 2025 will mark the third consecutive year of positive market returns, double digit returns at that. It is also very likely that the Fed will cut rates next week and that, in a few months, Trump will appoint a new Fed chair whom he hopes will carry out his wish to lower rates further. All this may create some new challenges for investors, already nervous about all the bubble conjecture and the large capital gains sitting unrealized in their portfolios…

Last week the markets were volatile, experiencing the biggest drawdown in nearly 6 months on Tuesday yet finishing the week slightly positive overall. The respite was brief however. Selling continued into this week, highlighted (lowlighted?) by Thursday’s epic turnaround when, following market darling Nvidia’s strong earnings report on Wednesday evening, the market roared as it opened and then collapsed – the S&P 500 rising almost 2% before ending the day down 1.5%. Excitement over AI gave way to fears of excessive capital spending. Rate cut expectations declined in the face of various Fed Governor comments. Sentiment, formerly extremely positive and overly optimistic, had changed…suddenly fears of a bubble and investor pessimism had asserted control…

I was tempted to begin today with the truism ‘The more things change…etc.’ Fairly certain that I had used it previously, however, I resisted. I try not to repeat myself. Still, several aspects of market activity and analysis keep reappearing and repeating – in particular, the endless debate on valuation and the existence – or not – of a bubble, as well as the frenetic investing activity jerking the market averages around. Today, (11/7), for example, the market averages opened down and continued so, the decline reaching more than 1% at its lowest, the Nasdaq down almost 2%. Then suddenly an unexpected reversal, the day ending with several of the averages in positive territory and the Nasdaq’s decline just 0.2%. If you are a trader, you love the volatility. If you are an investor, you need to look through it, focus on the long-term horizon, and control your emotions…

The market’s activity since last we met in this space has only heightened emotions amongst investors. Excitement about artificial intelligence has led investors to add to investments in large tech companies, often disregarding traditional valuation metrics. The rising market has also encouraged those who ply the meme stock waters, generating the necessary headlines and hyperbolic moves in the targeted securities. Though quarterly earnings reports have mostly been strong again, many market participants are increasingly focused on narratives and momentum rather than earnings, valuations, and the financial health of companies…