December 2025
As you know, I have frequently expressed concerns about high valuations for stocks. The concern has been expressed vehemently, yet so far, no serious risk has presented itself in terms of market draw downs. The narrative of US public markets being risky has not proven to be accurate over the past few years. That said, what was once a minority view is becoming increasingly mainstream, as valuations remain stretched. The adage of ‘markets can remain irrational for longer than you can remain solvent’ has proven to be prescient and problematic for those who raised their cash positions. It has also caused certain commentators (including myself) to feel like Chicken Little. Despite our breathless admonitions, the sky has not fallen – yet.
Some people chose to exit public securities, but not capital markets. Private assets where there are likely to be pockets of more realistic valuation, as well as traditional inflation hedges like infrastructure and gold, have all performed relatively well in 2025. Rather than engage in market timing, this approach is more akin to an active reallocation toward being fully invested in asset classes that are more reasonably priced.
A few years ago, regulators changed the way accounts are assessed for client suitability and overall risk. Until then, new client application forms (NCAFs or ‘KYCs’ as they are often known), were completed with allocations towards stocks bonds and cash. More recently, a more fulsome approach has been implemented. Now, products are rated as low, medium, and high risk – irrespective of the asset class they represent. Portfolios are constructed with an eye toward a two-pronged test of risk tolerance and risk capacity. Both need to be considered, and portfolios are to be constructed with an eye toward the more conservative of the two tests.
As many people have noted, the risk associated with equities in general, and US technology-based equities in particular, is now significant. Many people (me included) remain puzzled as to why public markets haven’t pulled back in a significant way until now. I will make it my New Year’s resolution to not be overbearing about this any longer. I have done all I can to ring alarm bells, and I believe there are a number of other well intended people who have done the same. My concern that industry-wide bullshift (deliberately shifting people’s attention to make them feel bullish) has been playing out in a way that I predicted in a book released three years ago.
In some ways, the fact that the market has not experienced a significant pullback is both a blessing and a curse. On one hand, circumstances have conspired to provide me with ample time to do what I could to bring concern to public consciousness. On the other, too many people have acted as though my brethren and I are out-of-touch cranks who refused to acknowledge what they might portray as a new paradigm. Anyway, the upshot of all this is that I have a second resolution for 2026. If I turn out to be correct, I promise to refrain from saying, “I told you so”.