One aspect has flipped: “SaaS” businesses (Software as a Service) are no longer being cast as AI victims by the investment crowd. The thinking has been that in the face of increasingly agentic AI capability, these companies— which offer security services, data storage and analysis, customer relationship management, human resource management and so on— didn’t have much runway left. Investors had begun running away.

On May 1 of this year, I published “SaaS-pocalypse?” Bullsh*t., calling out the hype and making a case in favor of deeply embedded enterprise software core to their customers’ businesses, different from a suite of tools that AI could replicate. I got substantial pushback too, as the AI evangelists in my midst (politely) berated my lack of faith in the all-powerful new technology.

Share Earning to Eighty

Since then the view has cleared some. Fully aware of the target on their backs, many of these firms have been working to show revenue and profit growth which not only put lie to the rumor of their impending demise, but which show improvements resulting from AI as they integrate new agentic tools of their own. Consequently, their customers achieve better results and buy more services, pushing their valuations skyward.

That was my case in the spring, and I’m pleased to say that recent days have borne out the idea: as of market close today, since their doldrums about May 1, 2026, these firms have obliterated the broader market:

Okta and Snowflake both up well over 100% in just a few months!

As always, I put my money where my mouth is (keyboard is). When I wrote about this phenomenon in May, I bought shares of several enterprise software firms which had been beaten down by the ‘saas-pocalypse’ narrative. So I’m reaping the rewards today.

Obviously, any of these gains could disappear just as fast as they appeared. They could bounce around for weeks or months, or they can continue to grow from here. That’s the nature of investing in individual businesses. What it comes down to is simply:

Do these companies provide a service that their customers both require AND cannot simply replicate using AI? How hard are they to disrupt?

Judging by the speed and power of the AI buildout, we’re still in early days of the new AI universe. It will change the industrialized world; already there are signs of AI impact on law, manufacturing, medicine and bioscience, agriculture, entertainment, the arts, and more. Not all of that is an improvement. So then the question becomes, how far will it go; how will we adapt; who will be left behind.

Don’t get me wrong: I’m a betting man, and I’m not betting against it. But just as I must acknowledge my losses to learn from them, I gotta celebrate my wins where I can. And so should you.

Leave a comment

Go deeper:

Software earnings show AI as a revenue driver, with Salesforce and CrowdStrike leading gains - Investing.com, August 27

Salesforce rockets 22% for second-best day ever, leading software rally - CNBC, August 27

Enterprise software stocks rally as Salesforce CEO says time to stop Saas-Pocalypse ‘nonsense’ - Seeking Alpha August 27

Software Stocks Get an Earnings Gut Check After Hot Summer Rally - Bloomberg, August 26

I am primarily a stock investor. It’s what I’ve studied, what I’ve practiced, what I’m good at. I do own some bonds and bond funds, but because I know comparitively little about that market, I pay others to manage that portfolio for me (it’s smaller than my stock portfolio). One reason I so rarely write about bonds in this column is, frankly, I don’t understand all the underlying forces of the bond market or thoroughly comprehend its moves. I have only the basic outlines.

Which, if I’m honest, is an ignorant position to take. For one thing, the outstanding value of fixed-income securities (bonds) is substantially larger than the value of publicly traded equities (stocks), both within the United States and globally. Bonds are effectively loans issued by large businesses, by municipalities like cities and counties, and by sovereign nations like the US; the over-the-counter equities market only captures publicly listed companies. Governments finance themselves through taxes and other revenue streams, but when spending exceeds those revenues (as in the US for the last 25 years) they borrow. Generally that borrowing is on a scale which dwarfs that of any individual corporation.

Subscribe now

And because the bond market is larger and US Treasury yields (rates) set a floor on interest rates across the economy— and have been steadily rising in recent months— substantial events there have more systemic reach than something similar in the stock market.

The bond market has featured heavily in the news this week:

• The U.S. government now has $40 trillion of gross federal debt outstanding, an all time high, owed to investors, financial institutions, foreign governments and other holders of Treasury securities. The US has been rapidly taking on more debt even as corporate and individual tax cuts eat into revenue collection; a combination of pandemic-era borrowing, deficits compounding over years, and a rapid increase in government spending has driven the surge.

• The US government now spends more on interest for the national debt than on payroll, Medicare, Medicaid, or the military.

• The government is now competing for bond investors with giant hyperscalers borrowing to build out their AI models and expand data center capacity. How high must yields go to persuade investors to continue absorb it?

• Bondholders are worried about stubbornly rising consumer prices: inflation erodes the real value of fixed bond coupon payments. So they demand higher yields (interest) on their capital in compensation for the reduced buying power of the payments.

• The US Treasury, ostensibly to temporarily reduce pressure on bond yields, has announced increased bond buybacks. (Probably a coincidence that a national election is 10 weeks out.) But a stopgap buyback doesn't shrink the deficit or the $40 trillion balance.

• Stock investors worry that the businesses they own will have to pay higher rates when they issue new debt or refinance existing debt, which would cut into future profits and potentially reduce stock values.

• Consumers ultimately face higher borrowing costs as well, through credit card spending, mortgages, auto loans and student loans, and more.

Below I’ve reprinted a piece from NPR which provides both an update of recent events and some background as to what it all means and why you should care. My thanks to journalist Rafael Nam for his clear take on a complex subject.

Share

NPR: August 20, 2026

The bond market is signaling trouble ahead. This is why you should pay attention

by Rafael Nam

If you know one thing about bonds, know this: A sharp sell-off is shaking the bond market, and it has big implications for both the economy and your pocketbook.

To understand why the sell-off matters, it helps to understand how bond markets work — and why they are sounding alarm bells about the U.S. government’s record-shattering debt levels and the path for inflation.

Here’s a simple and handy guide to make sense of what’s going on.

How do bond markets actually work?

Bonds are essentially like loans. The U.S. government — like just about any other government in the world — needs to borrow money to afford all its spending, including spending on federal employee salaries and Pentagon projects.

So to raise money, the U.S. government regularly sells bonds to a wide range of investors, from banks to other countries to individual people. (Companies also sell bonds; those are called corporate bonds.)

And just like banks charge you an interest rate when lending you money to use for a credit card or when offering you a mortgage, investors expect to be paid interest in exchange for lending their money to the U.S. government. In market talk, that interest rate paid by the government is called the bond yield.

Bonds can fluctuate in value. It’s a simple rule: Bond prices and yields move in opposite directions from each other. And that can also affect the amount of interest the government has to pay on future bonds it issues.

The reason is that if bond prices fall — like they are now — investors demand to be paid more in interest as additional compensation. And vice versa. If bond prices are rising, investors are fine getting less in interest since they are holding bonds that are appreciating in value.

It’s not too different from how a financial firm could decide to charge you a higher interest rate for a loan if it’s worried about your ability to pay it back — or to lower your interest rate if it feels you are a good customer who’s always on top of their bills.

Why are bond prices falling?

In a very simplistic way, bond prices are falling these days because investors are mainly concerned about two things. First, that rising inflation is making the bonds they are holding worth less.

And second, that the U.S. government, under successive presidents, has had a habit of spending more money than it collects in taxes. Imagine suffering a pay cut without trimming back your expenses.

One of President Trump’s first major legislative victories in his second term, for example, was signing a megabill that extended tax cuts that were implemented during his first administration — while also raising spending in areas such as border security.

As a result of actions by Trump and past presidents, the U.S. debt pile is growing: In fact, on Wednesday the U.S. Treasury Department said federal debt hit a record-shattering $40 trillion for the first time.

That’s a major reason bond prices are falling. The yield on the 30-year government bond, for example, hit its highest level since 2007 this week. Most people don’t actually believe the U.S. is about to go broke and find itself unable to pay back investors, but investors are worried.

I’m not a Wall Street investor. Why should I care?

Bonds are critical to the economy because they influence interest rates that people pay on many things.

What matters most is the bond yield. Effectively, the interest rates paid by the government for its bonds become a useful benchmark for banks and other financial firms when they decide how much to charge for their own loans to customers.

That’s why hikes in bond yields can reverberate across the economy.

Mortgage rates, for example, are influenced by the yields paid by government bonds (though there are other factors as well). And at a time when bond yields are rising, it’s not surprising to see mortgage rates also rise. Last week, the average rate on a 30-year, fixed-rate mortgage hit 6.67%, nearly the highest level in a year, according to Freddie Mac.

It’s not just mortgage rates. Rising bond yields can also push up interest rates on credit cards, car loans — and all kinds of borrowing costs across the economy.

And, obviously, rising bond yields impact how much the government itself has to pay in interest. The slumping bond market is sending yields sharply higher, so much so that the U.S. is now paying $3 billion in interest per day. In fact, interest payments are now the government’s second-biggest expense, trailing only Social Security.

If bond markets are so worried about the economy, why are stocks at record highs?

That has been a big talking point on Wall Street.

But keep in mind that these are two completely different markets. Bond investors care, primarily, about whether they’ll get paid back. Hence, they demand higher interest rates when they start to get worried.

But stock investors tend to make a more straight-up bet on corporate profits. Investors who buy Apple shares are betting, for example, that the company will sell more iPhones and iPads and that the stock price will rise.

And right now, despite rising borrowing costs, companies are making some pretty decent profits, signaling that the economy may be doing well nonetheless.

In other words, bond investors and stock investors tend to see things differently. Tax cuts are a good example of this divide.

Generally, bond investors don’t like tax cuts. It means the government will probably earn less and struggle more to pay back investors. But for stock investors, tax cuts are good. They can juice up spending by consumers or companies.

But only to a point. If signs emerge showing that inflation or rising borrowing costs are starting to tamp down economic growth, by slowing down consumer spending for example, expect stock investors to join bond investors in worrying about the economy — and seeing trouble ahead.

Further reading:

$40 Trillion in Debt. How We Got Here - Wall Street Journal August 20

The U.S. National Debt Hit a Record High of $40 Trillion - New York Times, August 20

Treasury’s Bessent Leans Into His Role as America’s Bond Trader in Chief - Wall Street Journal, August 20

First it was the Magnificent Seven

Just a handful of companies have driven the vast majority of US market returns for the last few years. It’s the economic story garnering the most digital ink; to say ‘AI is a big deal’ doesn’t quite capture what’s happening.

Since the start of 2023, the S&P 500 index has about doubled in value. The Magnificent Seven— Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla— accounted for approximately 55% of the index’s total return in that time. And they’ve grown so big that together the Mag7 comprised about 35% of the total index by valuation earlier this summer, a record high.

It’s as true for earnings growth as it is for stock prices. For 2026, Goldman Sachs and other analysts expect the Mag7 will generate about half of total earnings growth for the second year in a row.

Simply put: seven companies, just 1.4% of all the companies in the index, are producing around half of the rising values of the index, and half of its earnings.

Of those seven businesses, five are responsible for most of the AI surge: Nvidia designs and sells the chips, while Microsoft, Alphabet, Amazon, and Meta all have their own monster internally developed frontier AI labs. The latter four have collectively spent well over $1 trillion on AI infrastructure since 2023, with their combined 2026 capital spending expected to reach hundreds of billions more.

But now they are the Tangled 10

Stay with me: there are three additional AI businesses stirring the financial media, vacuuming up investor capital and leaning hard on credit markets: Open AI and Anthropic are the two biggest players in the industry; SpaceX is a third whose rapidly expanding business now includes AI. While SpaceX came public in June, the former two are still privately held (for now). All three are among the top 20 most valuable companies in the US, with market values— across private valuations and public shares— ranging from around $850 billion to $1.85 trillion. These are genuinely massive companies. Each has its own well-funded and popular frontier model AI, and each is building out AI capacity (“compute”) at breakneck speed in the competition to gain the top spot. They have become ubiquitous and unavoidable.

As I wrote almost a year go, about the likelihood of an AI bubble, together these 10 companies have invested hundreds of billions of dollars into one another, have exchanged products and services at enormous scale, have used ‘circular financing’ to, in theory, backstop a collaborative network.

But in fact, the surprisingly tangled network of AI funding almost certainly makes these businesses weaker, since any obstacle which trips up one company could bring down others: if you and I are handcuffed together and I fall in the river ...

Subscribe now

It is not an exaggeration to say the U.S. equity market’s returns over the last few years have largely been a leveraged bet on a handful of AI infrastructure and platform businesses.

Why that is a problem

The risk might be mitigated or understandable if we were certain of the need for so much AI infrastructure. Do you remember a couple of years ago when the CEO of Facebook, Mark Zuckerberg, went all-in on the ‘metaverse,’ spending tens of billions and changing the company name to Meta? Remember in the early 2010s when the world thought 3D printing would transform global manufacturing? Both assumptions were totally wrong.

I have so many concerns with the current AI expansion. The most pressing:

Economic Viability

As I’ve said, a trillion dollars is a big number. Whatever comes next, every one of these companies is pretty far out over its skis. They are paying more attention to each other’s market share, relative spend, and the race toward domination than they are to the possibility this won’t work out the way they think.

Infrastructure Obstacles

Communities across the US are pushing back by declining permits and protesting the construction of colossal data centers possessing the vast ‘compute’ needed to process AI queries. These centers have become significant sources of electricity demand, coolant water consumption and associated emissions of pollutants and heat. Combined, these factors reduce available resources and drive up costs for area residents.

Share

Technological and Geopolitical Risk

Even as US frontier AI labs and their insatiable thirst for capital dominate the headlines, Chinese ‘open weight’ models, which across a number of applications approach the performance of the leading US systems at a fraction of the cost, have been gaining attention and market share and have begun to threaten the big names. These lightweight, open-source models are iterating quickly and that development is accelerating. Even if there is room in the market for multiple AI models stratified by capacity or speed or specialty or cost, no one can say what their longevity will be before sliding towards obsolescence.

Following years of public worry and outcry, and warnings even from AI creators and business founders regarding technological, geopolitical and even societal safety, the US government still has passed no wide-ranging federal regulation or guardrails around AI development.

Cybersecurity and Job Market

Just in the past couple of months, reports have surfaced of frontier models from OpenAI, Anthropic and Meta all taking unauthorized actions, independently accessing the internet and exploiting software vulnerabilities. (BBC News)

Decades ago, sci-fi books and movies served us exciting but unrealistic stories of computers and AI gone rogue, eliminating emotional and frustrating humans (Hal in “2001: A Space Odyssey” from 1968) or even taking over governmental weapons systems and starting a war against us (Cyberdyne Systems in “Terminator 2” from 1991). Those scenarios are no longer fantastical or fun. They are genuinely scary.

While the initial fervor has recently quieted, earlier assessments predicted huge economy-wide job losses as AI replaced workers for certain types of labor up and down the employment landscape, from manufacturing to data entry and research. While the employment threat is real, its magnitude remains uncertain.

That so much of our economy and markets are now dependent on this technology, in spite of all the red flags, means the future success of US frontier AI labs is even more in question.

Most US investors are top-heavy on AI

The likelihood is that you own one or more of the Mag7 companies directly; nearly all investors in US do. Their growth rates the last few years have been astonishing, and I’ll bet you haven’t sold out of much of those gains. Which means the positions in AI related businesses that you’ve held a couple of years are likely to be larger as a percentage of your holdings than most of your other stocks.

But even if you only have shares of the S&P 500 index, which presumably you own because an index fund should ‘automatically diversify’ you, your exposure to AI is substantial; the S&P 500 itself, designed to be diversified, has become highly concentrated. When you buy shares of the index, about one-third of your investment is into AI technology. You are directly supporting this level of spending, supporting this version of the future, supporting the financial snarl and the resulting risk of failure. AI is driving the bus.

So?

We don’t know the economic payoff of all of this. The market is pricing in enormous future profitability even as the capital spending is already staggeringly large and climbing. And for all of that spending, we don’t know the shelf life of this new, fast-moving and seemingly impermanent technology.

The question is not whether AI can generate substantial revenue. It does. The question is whether the revenues and productivity gains will ultimately justify the extraordinary capital expenditures committed to produce them.

When AI spending decelerates— because the returns on AI deployment fail to materialize, or because the buildout runs into power constraints or permitting problems, or because AI models in China or elsewhere get the upper hand, or because the companies simply cannot sustain this level of financial commitment— both the market concentration and the economic growth built on top of it come under real pressure all at once.

These are not independent risks. They are the same risk.

None of my arguments prove that AI is a bubble. It is entirely possible that a few years from now we’ll see incredible productivity increases, jobs numbers, and even profits big enough to validate the spending and interwoven risks we see now. The big players are seeing huge cash flows and rapidly increasing revenues, and might in fact be building foundational infrastructure for the computing generation of tomorrow.

But that is precisely the bet.

Leave a comment

For more:

Stock-Picking Funds Are Performing Poorly as Ever - WSJ

Market Concentration and the “Magnificent Seven”

Is The S&P 500’s Concentrated Rally Starting To Diversify?

SpaceX is growing up.

In its first quarterly earnings report as a public company, SpaceX beat estimates on revenue and managed a smaller loss than expected. The stock fell anyway, down as much as 12% just a few minutes into the earnings call.

The shares had already lost roughly half their value since hitting a high of over $200 a few days after the IPO in June, and they’re down still further today. The fact that investors started selling down their positions in the middle of an otherwise excellent earnings call should be your warning that the market isn’t grading SpaceX on its quarter. It’s grading whether a valuation built almost entirely on one man’s ability to bend the future was ever a good idea.

The state of SpaceX

SpaceX is three businesses stapled together:

1. a reusable-rocket and launch operation which commands a little over half of all global rocket launches but closer to 80% of total mass sent into orbit

2. an AI unit building out a combination of social media app X, x.AI and chatbot Grok, plus an expensive new acquisition of the coding tool Cursor

3. a satellite-internet service, Starlink, which manages well over 60% of all currently operational global satellites

Only Starlink is genuinely profitable. The other two are growing fast and burning cash faster. On the earnings call, CEO Elon Musk predicted the company would reach $1 trillion in revenues a year earlier than planned, in 2030. His bet is that SpaceX can scale rocket production and launches, satellite production and installation, and frontier AI infrastructure, all at the same time, and all on one balance sheet. That’s more than ambitious, it’s borderline delusional (Musk does not have a good track record meeting his own deadlines).

Despite the enormous price drop since its IPO in June, well over $1 trillion in lost value, the stock is currently trading for 74x annual sales. That’s by far the richest multiple of any company in the Nasdaq 100, more even than previous outlier Palantir at about 65x. And that’s for an enterprise which is losing money on two of its three business lines, losing money overall, and nonetheless has recommitted to massive new capex spending. Cheeky!

SpaceX share price since its June 12 IPO

The Elon premium

So why are shares still over $100/per, giving the company a $1.5 trillion market cap? Because the multiple isn’t really pricing SpaceX’s businesses, it’s pricing Elon Musk. 30 out of 39 analysts Bloomberg tracks rate the stock a buy at these levels, several with price targets north of $300. It’s as if they’re saying Set your laptop down here on this floating drinks cooler, it’ll be perfectly safe.

The Elon premium is real, and it is responsible for most of the price. For all his breathlessly reported wealth, government dabbling, online trolling, and reported substance issues, Musk is nonetheless a visionary who repeatedly (if belatedly) hits what were thought to be impossible targets:

• profitably launching, landing and reusing orbital rockets

• profitably building and mass-marketing electric cars

• profitably renting ‘compute’ from mega data centers to AI competitors

• profitably installing and marketing high-speed internet service from space

He also has an unmatched ability to pull in capital and talent, not to mention attention. That is undeniably its own kind of asset. Investors pay dearly for his shares because they believe he’ll do it again.

So even though shares are worth less than half their June peak, they are still much too expensive because so much of the valuation is merely promise.

This is what Musk does. Tesla shares are off nearly 30% this year due to a combination of unrefreshed product lines, an expensive and barely launched electric semi truck, sales falling off a cliff, and thin promises of a future made of humanoid robots and self-driving taxis— promises which Musk has repeated for nearly a decade. Yet with all that, Tesla is worth more than the entire global auto manufacturing sector combined. That’s the Elon premium.

Now SpaceX is further dividing Musk’s attention across his other businesses (Neuralink, the Boring Company, Tesla) and its own high-spend AI ambitions. Even as it’s running three capital-intensive businesses at once. Short sales of the stock have nearly doubled to 34% of the float in the few weeks the company has been public, an indicator of flagging market confidence. Finally, more than a billion newly unlocked SpaceX shares will hit the market this week and multiple billions more will become available before the end of the year, all of which could crush prices further.

Which is not to say this can’t have a happy ending. I’m rooting for SpaceX, for reasons I delineate here (plus because honestly it does some cool stuff). Musk could pull it off; he’s certainly done it before. It’s simply that a valuation resting on limitless belief in one person can crumble for reasons that have nothing to do with the underlying business.

The earnings report did what it is supposed to do: it showed the operating business improving. It can’t do what investors are implicitly asking, which is to prove that valuation based on faith in Musk is as durable as one built on cash flow and profits.

Further reading

1. Bloomberg, Carmen Reinicke and Ryan Vlastelica, “SpaceX’s First Earnings Offer a Chance to Reverse Stock’s Plunge,” Aug. 4, 2026

2. CNBC, “SpaceX is falling after posting first earnings report since IPO,” Aug. 5, 2026

3. CNN Business, “SpaceX revenue jumps 92% but stock tumbles,” Aug. 4, 2026

In October 2025 I wrote about AI spending and stock prices, both of which, at the time, seemed to be spiraling ever upward despite the technology earning effectively nothing.

Share Zaga Investment Co - Drifting to Fifty

In that time, we’ve seen new (and old) wars in the Middle East, off-again on-again US tariffs, the biggest-ever IPO, endless war in Europe, inflation, fear of SAAS-pocalypse, still more AI, and nonstop White House grift.

But now we are right back where we started: after hundreds of billions of dollars of additional spending and still precious little revenue, the hyperscalers— Nvidia in particular— are again being accused of ‘circular’ dealmaking: Nvidia invests $250 billion in, say OpenAI, and OpenAI uses that funding to build a data center, and to fill it with Nvidia’s chips. The transactions look great on both companies’ balance sheets but their codependence creates fragility: either one stumbles and they both fall.

It’s a classic problem and one which America’s markets have seen before. When young, unprofitable businesses encounter massive cost to create something completely new, they can’t exactly ask their banks for a loan; there’s no guarantee of success and no collateral to offer the banks. Where do they get the dough?

In the 2000-2001 internet build-out, the solution was called ‘vendor financing.’ A half trillion dollars’ worth of capital expenditure was needed to lay fiber optic and submarine cable, install internet exchange points, hubs and routers, and build early data centers. Networking gear manufacturers like Lucent and Cisco Systems extended many billions in loans to their customers such as Global Crossing and 360Networks. Both customers later went bankrupt when the bandwidth they built was not utilized and they could not service their borrowing costs. Lucent had to take massive write-downs and Cisco stumbled on for a quarter century before it reclaimed its 2000 stock valuation

Of course, in 2026, we use that bandwidth and more, and those businesses— not to mention something on the order of a half-million jobs lost— are seen by many as necessary sacrifice to achieve the wired world we count on today.

This is a recurring pattern: speculative capital floods a new infrastructure category, overbuilds ahead of demand, causes a bust, and the surviving physical assets end up cheap and useful later. It’s happened with railroads in the 1880s, telephone networks and automobile manufacturing in the early 1900s, the US electrical power grid in the 1930s.

So is AI just another in a long line of techno-overbuild?

You’d certainly get an argument from the players. OpenAI, Anthropic, Nvidia, Alphabet/Google, Amazon, SpaceX and Meta all are borrowing and building at a lightning pace. Each believes they will come out on top, unscathed by any AI-related rout. It’s an arms race they all think they can win.

Meanwhile, dropping at ever-shorter intervals out of China are brilliantly efficient and useful AI tools for a fraction of the cost. This is what China does: they take a hot new technology from the West, reverse engineer it better, then sell it back to customers in the west at a reduced price. They’ve done it with high-speed rail, electric vehicles, solar panels, war drones …

It’s a tough call: if your business uses AI, is it better to pay $200 per month for the best possible super-intelligent high-speed ‘frontier’ model? Or $20 per month for something that’s 80% as good?

Many will choose a Chinese model, at least until prices for western AI come down. They’re simply too inexpensive to ignore and most of us don’t really need the latest/greatest AI models anyway. Which means our hyperscalers could see massive losses and have to sell out, fold, or write off much of that capex in the near term (also why I’m an enthusiastic Apple shareholder!).

The stock market is well aware of the astonishing spending and is increasingly uncomfortable with it. OpenAI and Anthropic are still privately held, but Nvidia’s shares have lost nearly 17% since their mid-May high, and it’s about the same story for Alphabet and Amazon. Microsoft is down even more. Meta is feeling beat-up too (though they have other problems). The market is begging for earnings to show a pop, proof that this level of capex is worth it. We’ll know more later this week when several of the tech giants announce quarterlies.

For the moment, just remember: we’ve already seen this movie.

Subscribe now

Let me know your thoughts! It’s certainly an interesting time to be an investor.

Leave a comment

But I’ve never been totally alone. For most of my career there was a professional or two I could bounce ideas off of, or whom I could ask for advice. To be honest, I was pretty headstrong even at the beginning, so I would regularly argue and try to justify my positions. But at least there was a background voice of reason and rationality to illuminate the edge of the road, so I would know when I was leaving the pavement.

Share Zaga Investment Co - Drifting to Fifty

We all need that.

In this brief podcast, my colleague Barry Ritholtz addresses a subject I wish I’d thought to tackle (as he so often does).

Masters in Business with Barry Ritholtz: Bloomberg, July 15 2026

When Should Do-It-Yourself Investors Fire Themselves?

Today I want to look at the lessons, and my recommendations. The Zaga Way, I suppose (ick). This is the stuff that even I get wrong from time to time, the stuff that bears repeating. Nothing here will contradict what I’ve said before. But while some ideas below will address individual stock picks, others pertain to strategic portfolio management, and personal finance hacks and habits both before and beyond investing.

Subscribe now

One thing to remember: the numbers— revenues and profits, growth rates, projections— are really only partly responsible for a stock’s moves. A great portion of it is “story”: the vision and communication of a founder, the confidence of early backers, the steady propellant of smart PR. Stories have tremendous power in the market, both to drive stock returns and to induce big sell-offs.

One of the greatest of all stock stories is that of Tesla. The carmaker, valued today at about $1.57 trillion, is currently worth just slightly more than the added values of every automaker on earth. I’ll say that again: it takes essentially the entire global automotive industry— every legacy manufacturer, every Chinese EV maker, Volkswagen, Toyota, Ferrari, Rivian, all of it— to equal one Tesla.

Why is it worth so much? It’s not due to rising sales, profits, speedy growth, or technology. It’s story. Narrative. Tesla is valued not for what it makes now, electric mostly self-driving personal cars. It’s valued for its promised future products: robo-taxis and household robots. Even though both of those are merely in prototype and testing stages.

Nearly every truly great business employs a narrative to help its stock value grind upwards.

Another thing to note: most of my finance and investing recommendations are mathematics-free. That can be counterintuitive: most folks assume that to do well in the market, you need to love the numbers— spreadsheets, formulas, performance charts. That’s nonsense. It helps to be able to know basic arithmetic and how to read a balance sheet, of course. But really, none of those is the key to financial success. Here are some concepts you can easily grasp without an MBA or even a calculator.

Always pay your full credit card balance

We’ve all heard this before. But America is a nation which runs on credit, and most Americans carry a debt balance on at least one card. Many people have balances on two or more cards. And of those, a huge proportion pay only the ‘Minimum Due’ on each monthly invoice, which only compounds the problem.

To be clear: this is a sucker’s game. Paying only the Minimum Due will put you deeper into the hole over time because the lending bank calculates that minimum to not quite cover the interest: that bank wants to you keep forking over your cash forever. And the rates are staggeringly high: one card I use demands up to 30% annual interest if I’m foolish enough not to pay it off. That’s absolutely bananas, around 5x the going interest rate in any other borrowing context.

Credit cards charge you nothing at all if you pay them off every month. In fact, you save just a tiny bit by delaying handing over your hard-earned cash until the (day before the) due date, allowing your money to continue accruing interest in your favor those extra couple of weeks.

Pay that card off, right now. To be a scold about it: learn to live below your means. If you want to come even quickly, get a proper ‘debt consolidation’ loan from a retail bank or a credit union and use that to pay off your card balances. You’ll be charged a fair interest rate and you’ll have an easier time working down the debt.

Play only your own game

Often we get distracted when an influencer or a colleague starts boasting about something like Micron or Nvidia, which they bought in the pandemic and now they’re up 10x their investment. How much they’ve made, how it’s only the beginning, how you can get in too. What they’re really selling you isn’t their returns, and it isn’t even that business. They’re selling you their story, and a good story is contagious whether or not the underlying business earns it. And the story is part of what drove the stock up in the first place.

Share Zaga Investment Co - Drifting to Fifty

In reality we all have different financial goals, different timelines until retirement, different risk tolerances. Trying to match someone else’s investments assumes we are walking the same path. That person might be more knowledgeable about bio-tech or the banking sector, or be half your age and so can afford to place riskier bets. That person might be really lucky, and is taking credit for foresight when in fact they rolled the dice. Your portfolio will develop and diversify naturally over time to reflect your interests, your experience, your ability to handle risk and volatility and so on. Get comfortable with that. Difficulty: Green circle, Beginner.

Do without

In order to invest successfully over the long haul, you need first to have the capital with which to buy those investments. You need to cut up that third credit card, stay away from the outlet mall or the electronics sale. Have friends over at home instead of meeting at a restaurant. Trade that big SUV for a slightly used EV. Focus on what you want your life to be like in the future. You really don’t need a Rolex or Louboutins when you’re 27.

What you put into the market thoughtfully today, instead of spending on yourself, will grow and compound over the years and the decades and be worth 10x, 100x, 1000x in your middle age. Investments made when you’re young will one day enable you to fund a college education for your nephew, or pay for your aging mom to get home help, or to retire and travel in your 50s. That’s easily worth a few pairs of shoes.

Be patient

Corollary to the above: this all takes time. A tiny percentage of people get rich quick: tech entrepreneurs, basketball phenoms, YouTube stars (and it’s even harder to stay rich). The rest of us have to take the slow train. But the slow train is available to anyone, requires only a little knowledge and preparation, doesn’t require Victor Wembanyama’s big-guy agility or Mr Beast’s algorithmic virality skills. It’s just slow.

So be patient. Make investing a habit: if your work offers automatic IRA investing or better yet, matching deposits, grab that with both hands at least until you can do it without prompting. This is a long process that will absolutely pay off decades from now. Difficulty: Blue square, Intermediate.

Manage panic

Here’s what happens: someone who has developed a strong investing habit early on continues to build a portfolio as their income grows. But then along comes a cyclical downturn or recession and the accompanying stock market pull-back. Stocks do fall, and sometimes they fall hard, so this person panics (All that appreciation gone!) and sells out of their positions. Now they’ve salvaged some cash but it’s earning nothing and the investor is too afraid to buy back in (What if it drops again?).

Every downturn comes with its own story: overextended housing debt, war overseas, too much AI spending, you name it. And often it’s that story which makes people sell, rather the numbers. Your job is to not cave to fear.

The reason stocks grow faster than most other asset classes is because they gyrate up, down, back up. That volatility is the price of entry. A successful investor must absorb those inevitable drops and stay the course. Don’t sell unless there’s something wrong with the business.

For example: former blue-chip champion and current market punching bag General Electric lost nearly 80% of its value from January 4, 2017 through the end of 2018. But since then the stock has (bumpily) climbed 950%. Investors who refused to sell in 2018 didn’t have to do anything to get out of that hole other than to hang on. Sometimes you need to have ice in your veins, but this is a skill worth aspiring to. Difficulty: Double-Black diamond, Experts only.

Always be a buyer

I get asked all the time what I think the market will do next month, or next year. When do you think the Fed will cut interest rates? Are we heading into a recession? Notice that both questions are really about a narrative, whichever one is dominating the headlines that week, not about the health of any actual business or the story which pertains to that business.

I respond with the truth (I have absolutely no idea) and then by asking why they want to know. It’s nearly always because they want to buy shares of something or other and don’t know if it’s the right time. But here’s the trick: it’s always the right time. Sure, don’t buy shares of a business that sources you trust say is teetering on the edge of bankruptcy. But in general, if you don’t need the cash for a few years, be a net buyer of shares. Whatever happens next quarter or next year, the long term trend in the markets is always upward.

Don’t get lazy, or stupid

So much of successful investing comes down to just not making dumb mistakes. Many of these you already know:

• Don’t wait to start putting money away

• Don’t put all your eggs in one basket

• Don’t lend to friends and family (if they need help, give cash. Better for your relationships for you to expect it will never come back)

• Don’t buy a lot of stuff which depreciates: cars, electronics, clothing

• Don’t be in a hurry

• Don’t fall for clear pressure tactics

• Don’t sell into a market panic

• If it sounds too good to be true ...
  
  

Buy what you know

This is the same advice they give to aspiring writers. Start with your own experience and your own interests. Computer nerd? Look at software companies and network security and hardware manufacturers. Sports fan? Look at the betting businesses, makers of fan apparel, team logistics, broadcasters.

It is so much easier to see the news and grasp what matters to your ownership stake if you truly understand that business. You’ll know what it means to their success if they can’t find enough talented hires, or if there’s a competitor with a new technology or if they’re facing regulation overseas. With enough exposure to news and analysis about the business and the ups and downs of that industry, you’ll intuit what should constitute real concern for you and what shouldn’t. Firsthand knowledge is what lets you distinguish a company’s truth from its marketing story.

Separate news from noise

When you own shares of a company, the overwhelming majority of what’s happening in the market, or on Instagram, on the news sites, or with quarterly earnings reports, simply does not matter.

If you’re saving for your kids’ education or your own retirement, many years from now, you shouldn’t care that the Wall Street Journal is predicting a market decline. You shouldn’t care that Barclay’s just ‘downgraded’ one of your stocks or that Mad Money’s Jim Cramer says to sell. You shouldn’t care that Meta or Amazon has announced an expansion into an industry you’re in. You shouldn’t care that an earnings report came in a little under analyst expectations. Downgrades, hot takes, Cramer: that’s not news, it’s someone else’s story competing for airtime with your company’s real narrative.

All you need to care about is that your business is healthy and well-run. That it offers great products and has a deep competitive moat. 98% or more of the stuff you read or hear about every day is just noise and will not affect your shares in the long run. There will be many little bumps that your stocks will have to endure, some created by the stories of others:

Google’s search business is losing to the AI companies!

Apple has no AI and they gave up on building a car!

Saas-pocalypse is wiping out the software industry!

Likelihood is, the bumps and hiccups will pass. The media makes money by getting and holding your attention. They do that with shock, danger warnings, fear and hand-wringing. Stay focused on your businesses and think for yourself: will this information affect the success of the company a year or two from now? Probably not.

Sell ONLY for one of the Four Reasons

I’ve covered this repeatedly so I won’t belabor it here. Just know that when you’re a buy-and-hold investor, there’s no such thing as ‘the top.’

Who imagined 20 years ago that Apple— placed on life support in 1997 and in 2003 still just a maker of unpopular computers and a clever new MP3 player— would become one of the most valuable companies on the planet? How many people sold after a few years of stellar growth thinking, Surely it can’t get much higher! And how many sold in 2011 when Apple founder and tech icon Steve Jobs died, thinking, That’s the end of an era, it can only drop from here. It was a story investors were told over and over. It defied sound judgment. It was not an analysis of the business. (Since the start of 2011, AAPL is up roughly 3,200%, price only, split-adjusted).

If you’re going to sell, have a very very good reason. Read more about my Four Reasons.

Read a great book about money

Finally, check out two of the most insightful, wise, and easiest-reading finance books ever written, by my friend Morgan Housel: The Psychology of Money and The Art of Spending Money. Never have I read books like these!

Leave a comment

I’ve spent 2026 doing what I’ve done for decades: assessing industries and businesses, reading analyses, tracking earnings, comparing competitors, scrutinizing media to separate news from noise. I build out a thesis for every position before I put money behind it. It’s the work I’ve described in this newsletter for forever, the work I believe in. Most years it pays off. 3 or 4 years out of 5, my carefully crafted portfolio of mostly single-business stocks beats the S&P 500 index. Over 10 years or more I pretty well crush it. I’ve taken satisfaction in that, and a fair bit of pride. I’ve written here and here about why for me the effort matters (though it’s not for everyone).

But in 2026 it hasn’t done me any good at all. As of today, July 8, my portfolio is trailing the S&P 500 and the Nasdaq 100, as well as every broad index I’d care to consider. I’m only a few percentage points behind the S&P, but the Nasdaq has outperformed me by a gap wide enough to swallow a SpaceX rocket. The tech-heavy index has had an especially impressive run given all the craziness in this year with the war in Iran, rising inflation and fuel prices, national politics and geopolitics and so on. As I write this, the S&P 500 is up close to 10% from the start of the year. The Nasdaq 100 is up by almost 16%. Meanwhile I’ve achieved nothing close to that. For all my efforts, I have substantially less to show than if I’d just put it all into the index ETF “QQQ” on January 1 and then ignored it.

That’s an uncomfortable thing to admit in a column built on the premise that you can be your own investment advisor, and that careful stock selection is worth the time. So I want to use this space to ask the question honestly rather than to rationalize it away:

The data certainly doesn’t support stock pickers

It would be easy to write this off as one bad year. It is, but it’s not alone. S&P Dow Jones Indices publishes the SPIVA U.S. Scorecard every year, comparing actively managed stock funds, run by professionals, against their benchmarks. The 2025 numbers are stark: 79% of all active large-cap U.S. equity funds underperformed the S&P 500 in 2025, the fourth-worst year in a quarter century. Stretch the time horizon and it gets worse: Over five years, 89% of active large-cap funds underperformed. Over 20 years, it was 93%. Almost no one can beat the S&P over the long haul.

You can see why I’m proud of my record!

These are professional finance managers with Bloomberg terminals, research staffs, and access to billion-dollar corporate management teams— the C-suite folks at public companies who would never call me back. I have no formal training, no quants, no high-speed algorithmic trading, no Bloomberg; it’s just me and a laptop and a lot of reading. If most of them can’t do it consistently, then what am I thinking?

The big challenge of 2026 (but it’s always something)

I’ve written before about how concentrated and expensive this market has gotten — that the S&P 500 index itself has become a bet on just a few giant tech companies, with the ten biggest names making up close to 40% of the index’s value, the highest share on record. That concentration cuts against stock pickers in a specific way. When nearly all of an index’s return is being generated by so few companies, and most of us hold maybe one or two of those at meaningful size, then the bar for ‘beating’ stops being about skill and starts being about whether you happen to own enough shares of Nvidia, Microsoft, Alphabet, or whichever. In a market like this, a diversified portfolio of multiple smaller positions (more or less like I have) is structurally disadvantaged against simply owning the index.

What the work costs me

But this part is harder to quantify. Every quick-check of the day’s markets, the articles and analyses I read, the spreadsheets I endlessly fine-tune, an investing podcast I listen to twice or thrice, innumerable sleepless 3am worries: that is time I’m not spending on something else. This year, all that effort produced a portfolio that’s badly lagging an index fund I could have bought in two minutes and barely considered again.

There’s also a behavioral cost that doesn’t show up in a performance chart: the temptation to chase the returns of others, to reconsider a thesis because it hasn’t been working, to diversify outside my wheelhouse, to add risk I otherwise wouldn’t take just to close the gap. Exactly the kind of decision making that turns a bad year into a worse one.

Share Zaga Investment Co - Drifting to Fifty

The learning

I’m not ready to conclude that stockpicking is pointless: my multi-year record says otherwise, and I don’t think any single mediocre year should override many good ones. I think the honest takeaway from 2026 isn’t stop buying individual stocks. It’s more nuanced: the case for going 100% hand-selected and 0% index has gotten weaker.

A more defensible structure, and the one I’m actually inching toward, is a core-and-satellite approach:

1. Put the bulk of my portfolio in low-cost index funds:

   1. SPY (S&P 500) or VOO (S&P 500) for broad exposure

   2. QQQ (Nasdaq 100) for a deliberate lean toward techy growth names

2. Keep smaller satellite allocations in the individual companies where I have genuine conviction and want to place my bets

That core protects me from years like this one, where being wrong about concentration or sector weighting costs me 10% or 15% against the benchmark. The satellites keep the process and the excitement I actually enjoy, keep me honest about whether my research is adding value, and still give the me a chance for outperformance.

The answer isn’t to just Go Fishing. But I think the honest truth is that I should probably be using the autopilot more than I have been.

Leave a comment

I wrote in September 2025 that I thought market prices were too high to be sustainable. I said I was concerned about China, Russia, Israel, Canada. I mentioned wars on two continents, political division, the wealth gap, and Congressional indifference to pretty much everything.

Nine months later, nothing on that list has improved; from an investment perspective (never mind a citizen’s perspective), most have crumbled further. The same two wars continue plus now the US is itself engaged against a determined Iran. We have spiraling inflation, climbing interest rates, and the on-again-off-again closure of the Strait of Hormuz driving up gas prices worldwide. The wealth gap has deteriorated steadily into the K-shaped economy. Excruciating political division has expanded into genuine social division. The president’s approval ratings— and Congress’s, and the Supreme Court’s— have plummeted to record lows.

But the S&P 500 index, the traditional measure of the state of the stock market, is up over 7% year-to-date with all of that. The Nasdaq 100 composite index (technology) is up something like 16% in that time. Which means that exactly none of the usual drivers of market concern and selloffs have merited any real worry from investors. Despite war, rising inflation, rising interest rates, political instability, general grumpiness and dissatisfaction: fear has not impacted the market.

Corporate earnings this year have been surprisingly strong (consumers and businesses not yet feeling the pinch?) and stock prices as of last week were historically high. The attitude has been “Let’s party!!” Is it all AI enthusiasm?

Share

The last several days have been a wake up. The ‘hyperscalers’’— massive cloud services and global data center operations (think Alphabet, Amazon, Microsoft, Meta) — as a group are off 6-8% from their early June highs. Is the rush to build AI pausing for breath, or is this a genuine market-wide rethink of cost? Will the mad upwards dash resume?

SpaceX came public last week at $150, immediately rocketed (sorry) to $225 within a few days, and has crashed back down to just a titch above that same $150. Personally I don’t think that pullback is about its struggling AI product so much as a rare bit of reality around an Elon Musk business.

So what exactly is happening?

As I’ve said before when I examined the then AI bubble, I’m nervous about an impending retreat. So I’m stashing cash for future costs and opportunities. I believe AI stocks are substantially overpriced, and AI alone has been driving markets upward for a while: since ChatGPT’s release in November 2022, AI-related stocks have accounted for roughly 75% of all S&P 500 index returns. By May 2023, massive capital expenditures by hyperscalers combined with an insatiable demand for high-capacity hardware meant market growth was almost entirely due to AI-related spending.

Subscribe now

In fact, without the surge of just a handful of AI businesses, the broad market indexes would be negative for the year. AI-related companies have generated over 80% of the S&P 500's year-to-date gains in 2026. This growth is too narrow. Makes me itchy.

One of my favorite Wall Street Journal columnists, James Mackintosh, just dropped a piece about elevated stock prices, what businesses with expensive stock typically do with all that excess value, and why investors should be a lot more worried than they are.

All the Money Flooding Into AI Is a Giant Warning Sign

When companies as a group turn into sellers, it’s a reasonable sign that stocks are very overpriced

By James Mackintosh

June 21, 2026 at 5:30 am ET

SpaceX launched its IPO earlier this month. ANGELA WEISS/AFP/GETTY IMAGES

What should you do if investors bid up your stock on the basis that you will be a winner in artificial intelligence, but your product isn’t popular? Elon Musk has the answer: Use your expensive stock to buy another AI business.

SpaceX’s SPCX -16.43%decrease; down pointing triangle $60 billion all-stock purchase of Cursor, a programming assistant that popularized “vibe-coding,” makes Musk a player in corporate AI in a way that his Grok chatbot hasn’t.

It is also part of a rush of stock issuance that should raise serious red flags even among those who dismiss elevated valuations.

Companies always have a choice of how to finance capital spending and takeovers. They can raise debt or issue stock (or a mix). If interest rates are low, debt is cheap for companies. Equally, if stock valuations are high, it is “cheap” for a company to issue more. Only firms in desperate need of cash sell more shares when their valuations are low, because it dilutes existing shareholders and trashes the share price.

Legendary investor Benjamin Graham thought of “Mr. Market” as a manic-depressive, offering daily prices to investors—sometimes far too high (you should sell) and sometimes far too low (you should buy). Mr. Market also offers companies the opportunity to buy from or sell to us investors—and when they issue stock, they are choosing to sell.

In any individual case selling stock can be perfectly reasonable. Balancing the amount of debt and equity a company uses helps offset the perceived riskiness of an investment or acquisition. Equity is good for risky endeavors because it doesn’t have to be paid back like debt. The mix of debt and equity feeds into the company’s weighted average cost of capital, a measure that helps determine whether a particular investment is worth it.

But step back, and when companies as a group turn into sellers, it’s a reasonable sign that stocks are very overpriced. Indiscriminate demand from investors incentivizes companies to step up to supply them, both with secondary offerings, like Alphabet’s GOOGL -4.99%decrease; down pointing triangle recent record-breaking issue, or IPOs.

Examples from recent history stand out.

In the dot-com bubble and postpandemic SPAC mania there were waves of IPOs and secondary issues as stock valuations rose. There was also a boom in U.S. mergers and acquisitions, only just surpassed in the past four quarters in dollar value. Companies financed those deals with equity—two-thirds with new stock in the dot-com M&A and 45% in 2020-21, the two highest over a rolling four-quarter period in LSEG data dating back to 1990.

Big deals are flourishing again: giant IPOs blasted off with SpaceX, and companies are choosing to issue stock—using shares to finance almost half the cost in the current quarter, according to LSEG. (Over the rolling four-quarter period, it is still only a third.) Investor demand for stock is, in part, being satisfied by the creation of new stock.

The flip side is, when debt is cheap, it can cause even more serious problems. Pre-financial crisis deal value peaked at $910 billion over the year to the end of September 2007, just before shareholders realized the economy was built on sand. Only 19% of that was financed with stock, because debt—helped by endless structured products—was far too cheap. The bubble was in the debt markets, not equities, although the implosion of the banks and deep recession still hit stocks exceptionally hard.

Corporate financing decisions are in some ways better at measuring how expensive the market is than standard valuation gauges, which compare price to some measure of corporate fundamentals such as past or forecast profits (soaring), book value, free cash flow (plunging) or sales.

These can be misleading, often disagree, and mostly have fairly short histories. Worse, the baseline for what counts as expensive can change over time as the structure of companies or accounting standards shift. In the case of book value, it now needs so many adjustments as to be virtually useless.

One example: The S&P 500’s ratio of price to forecast earnings currently stands just below 20, well down from the 23 times reached both in 2020 and last year, and the record 24.5 times in the dot-com bubble. It’s still very high, but it has fallen because Wall Street expects earnings to boom—particularly in highly cyclical chip stocks where record near-term profit margins are unlikely to be a good guide to the distant future.

There are drawbacks to looking at how much companies choose to issue debt or equity too. The decision on whether to raise money through stock or bond issuance tells us about how companies see the relative valuation of stocks vs. bonds more than the absolute valuation.

When it becomes concerning, at least in my view, is when there’s a flood of fundraising, debt or equity or both. If lots of companies are raising cash to chase the same opportunity—in this case AI—there are three possibilities.

The bull case is that the opportunity is so huge it can absorb all the cash and still deliver fat profits. The bear case is that the opportunity is real but spending so much will destroy value as competition erodes margins. The deeply depressing third possibility is that companies are raising and spending so much merely because shareholders are cheering them on, and the AI claims are just wildly overhyped.

The danger is it turns out like the dot-coms. Then, like now, companies competed to spend as much as they could as quickly as possible and the “burn rate” was seen as a positive—until it turned out all the shareholder money had gone up in smoke.

Copyright ©2026 Dow Jones & Company, Inc. All Rights Reserved.

Appeared in the June 22, 2026, print edition as ‘Flood of AI Money Is a Warning Sign’.

SpaceX, SpaceX. I’ve read that name easily a couple of dozen times a day the last few weeks. $75 billion of fresh capital will be raised in its IPO this week, and demand for shares is outstripping supply by 3-4x. This likely means that the first traded shares (shares transacted to and from investors, after the shares are issued at the IPO price of $135/per) will be very, very expensive: close to 100x annual revenue, or about 5-10x what you would expect to pay for a steadily profitable and fast-growing technology company.

But what they’re doing is so amazing! I simply have to get some!

Some of that added cost is what’s known as the “Elon premium”; shares of Elon Musk’s other enormous company Tesla have been wildly overvalued by the usual metrics for a decade and a half. Presumably this is not due to Tesla’s business fundamentals or profits, but on the basis of promises Musk makes about Tesla’s future: self-driving taxis and humanoid robots. The thinking is that SpaceX too should be valued on its distant prospects, which I note below.

Subscribe now

But if you’re that fired up to buy SpaceX shares immediately, then hopefully you’ve done some due diligence. Presumably you know that:

• The rocket launch business is currently about 22% of revenues, entirely on the back of Falcon 9 and Falcon Heavy, which are successfully sending equipment and humans into space, then returning to earth and landing safely to prepare for immediate re-use. However, this division is losing billions as the company pours its capital into making the massive Starship rocket commercially viable.

• The AI division, including SpaceX AI, xAI, and Grok, carries about 17% of the revenue load but is an enormous capital drain. The company is working to make Grok a proper chatbot competitor to OpenAI’s ChatGPT and Anthropic’s Claude but the resources required are substantial, and the income from subscriptions is not sufficient. Social media business X (Twitter), part of the AI division, is seeing continued falloff in advertising revenue and subscriptions as well. X is essentially a subscale, wannabe social media business being carried by other divisions alongside enormous xAI infrastructure costs.

• Terafab is a huge semiconductor joint venture between Elon Musk’s various business ventures, aimed at resolving a global bottleneck in AI chip manufacture and ‘compute’. Terafab might turn out to be a major revenue contributor someday, but for now it is a gargantuan money sponge, expected to cost between 119 billion (Elon Musk’s estimate) and several trillion dollars (analysts’ expectations) over the next decade or longer.

• The Starlink satellite network is responsible for around 61% of revenues and is the only profitable division of the business. It’s a fast-growing sector, in-demand around the globe. Starlink enjoys reduced costs relative to competitors as satellites are routinely placed in orbit by SpaceX rockets at a substantial discount.

Share Zaga Investment Co - Drifting to Fifty

The business is a conglomerate, of sorts, with an assortment of both good and bad businesses. But what really drives the market valuation, so far, is the promises SpaceX makes to investors. Most of these reside in the category of Hopefully someday:

• There are not currently any data centers in space, nor are there actual complete plans for them. Reportedly, the current state of available technology is not yet sufficient for such an undertaking, and neither is the almost incalculable funding required.

• There are no moon vacations, nor any moon hotels in which to stay on said vacations. Space tourism remains a wish.

• Not a single moving asteroid has ever been mined.

• A Mars-capable rocketship, never mind an off-Earth colony of a million people, is, for now, complete fantasy.

The lead investment banks on this listing, Goldman Sachs and Morgan Stanley, have been shouting some pretty dazzling financial projections, hyping valuations to push share orders. (Conflicts? What conflicts?) SpaceX pulled in about $18.7 billion in 2025, per its S1 filing. But both firms believe SpaceX will reach about $160 billion in revenues by 2030. To be clear, that’s an 8x growth explosion in just 4 years. And both additionally claim SpaceX will pull in trillions in profit per year by 2040. It’s a staggering projection and sounds to me a lot like those wishful Mars colonies.

If you’re considering taking a flyer on SpaceX shares, and you want a more fleshed-out overview both of what’s concerning and what’s exciting about the company, both the Motley Fool and Bloomberg have produced excellent write-ups recently:

7 Things Investors Need To Know About SpaceX —Motley Fool

SpaceX IPO Demands Trust in Musk’s Entangled Empire —Bloomberg

To my eye: I expect there will be a gigantic surge in the price of shares in the opening few days, followed by almost as big a drop as speculators try to jump into and out of shares, hoping to do so before the music stops. It will be safer to wait until the business has been public, and its practices and cash flows visible, for a minimum of a few months.

*Disclosure: I currently own shares of SpaceX via two intermediary LLCs, which I managed to buy a few years before all the crazy. At that time it was only a rockets and satellites business. I’m very fortunate to have them, and they have performed well on paper. But the new vastness of the business I own worries me, and I did not want to own either a social media company or an AI company. How long before SpaceX absorbs shrinking Tesla?

While Musk is a visionary unafraid to challenge conventional wisdom, he is also mercurial and far too powerful: he will control 85% of the voting shares of SpaceX, and also will be the world’s first trillionaire. Finally, he is extremely distracted, as he is CEO of Tesla, Neuralink and the Boring Co., too (the real operational brains of SpaceX is COO Gwynne Shotwell, but she will always answer to Musk). This whole enterprise excites me, and scares me.

Of note, I cannot sell my shares until after “lockup”, at least 6 months following the IPO. Writing this today I haven’t the faintest idea whether that is a detail worthy of fear or relief.

If I were interested in buying shares of this unique and uniquely managed business, I would not buy at the IPO but would wait until both some patient longtime shareholders and the stock speculators clear out, creating a price drop later this year or in early 2027.

Apple AI will actually ship in September. This time, it’s game on

After a decade of ignoring AI and two years of failed attempts, Apple will finally launch an AI-capable Siri personal assistant this fall. The new Siri will be embedded in every device and most abilities will be backwards-compatible, meaning your aging iPhone 13 should still be able to access at least some features.

The new Siri will be enabled by an Apple-customized and integrated version of Google’s Gemini chatbot. The new Siri will do all the expected tasks, like integrating your calendar and your emails to help you schedule, providing directions, and arranging events. It will be a researcher and shopping assistant and will be able to handle some tasks on its own: everything that AI from Apple’s competitors have been doing for years..

But here’s what makes the new Siri unique: Apple’s total spend. To date, the other hyperscalers have spent upwards of $100 billion each to build out their systems. And they’ve all pledged to spend as much as $200 billion more in this calendar year. Enormous, impossible sums, funded by debt, by share sales, by profits. But Apple will spend a mere $1 billion per year to use Google’s Gemini as a foundation. One tiny billion, instead of hundreds of billions.

It’s a gamble. But if Apple is correct, and the various AIs and chatbots are less winner-takes-all and more of commodities, interchangeable with a little tweaking, then the company will be hundreds of billions richer for the risk. From the standpoint of ROI, Apple will be off the charts relative to its competitors. An investors’ dream!

The stock market is dropping as the big investors ‘rotate out of tech stocks’. What are you doing to defend?

If we listen only to our emotions, this is the nightmare scenario (it’s not actually). That great big pile of stocks at high prices that we’ve managed to build seems to be evaporating before our eyes.

We worked so hard through all of the crazy recent years of the market! We leaned into fear and were rewarded! We were so patient!

It’s nerve-wracking and sleep-killing.

But in reality, even a sharp correction simply resets most of our portfolio gains to where we were just a few months ago, or even late 2025. It’s a paper loss, but nowhere near the calamity for investors that it feels like. Remember that investing is an endurance sport!

That said, you might want to consider socking away some cash if things keep falling. Though it’s terribly difficult to do, I would only sell a little, and leave most of my portfolio untouched. Not only might you need money (and you certainly don’t want to sell into those severe contractions, thereby locking in reduced gains). But once the markets calm, and we bump along at a lower level or even start climbing once again— as the market always does— those new low prices look pretty attractive on businesses we’ve already vetted. If you’ve stashed cash, why not pick up a few more shares of your favorites, at a discount, and then ride them back up?

Leave a comment

In the summer when I was a kid, my mom would walk in and turn off the TV (Bugs Bunny or old Clint Eastwood movies). “Go outside. Go be active.” In school we were told to do our homework, get involved, study harder. At work we are expected to tackle assignments, manage the team, host the meeting, complete the project, exceed expectations. The more we do, the better the outcome. The same is true around the house. At the gym. In our communities. Constantly, everywhere, it’s all doing. We are never, never supposed to just sit there.

Much of the time, portfolio growth seems about as speedy as the movement of an hour hand. It certainly moves, but we can’t see it moving. Now and then it we notice it’s in a different place.

Given what we’ve learned in every other realm of our lives, it’s not a surprise that most of us— home ‘retail’ investors and professional managers both— suffer from action bias, or the need to continually do something instead of nothing. So they sell a falling stock, fearful it will keep falling. Or they move their money from slow-growing shares to, hopefully, faster ones. Or they think something they own has topped out, so they dump it and look elsewhere. Or they read the future is about real estate or crypto, or they see some financial TV loudmouth telling them to get out, so they sell everything. Or the country is at war, or the Federal Reserve is threatening to raise interest rates, or we have political instability or inflation is rising …

Investing actually moves slowly. But market news organizations, TV networks, FinTwit and FinTok all encourage us to take constant action: “Buy the dip! Sell now! Treasuries are surging! Get out before the crash! Interest rates are heading up!” It’s exclamation points and manufactured excitement. They need to create content for their viewers and subscribers; they want to generate ad clicks; they throw around colorful charts and splashy titles because they want us to think what they do requires special tools and training— that’s good for their business.

All of which makes just standing by idly, while our investments gyrate, extremely difficult.

We get a stock tip at a party, or a financial advisor tells us about a fancy new algorithmic trading method, or a buddy is building an app that can make us rich. We want to do something to maximize returns or least protect ourselves from the crazy nauseating roller coaster ride.

But that’s just it. We have to chill out and wait. It's a marathon not a sprint.

Share Zaga Investment Co - Drifting to Fifty

First of all, every time we move capital around we block the staggering power of compound interest, stopping the clock and resetting to zero as we start over with a new asset. This web calculator explores the difference over time between simple interest and compound interest: look at the exponential gains to a portfolio from just letting it ride:

Next: each time we sell shares— stock or ETF— at a profit, we owe capital gains tax on that profit: 20% for positions held over one year, as much as 37% for those held less. That tax is paid, or must be set aside, before any new investment. Whatever asset we rotate into must not only outperform what we sold, but first recover what we lost to taxes.

Third, if we try to speed things up we make errors: mistaking a bad business for a good one; inadvertently adding risk; overestimating, leveraging, worrying. Just like that we wind up chasing market gains instead of earning them.

That's how we’re built: if we get impatient, we act. We fundamentally believe that doing better means doing more.

But in portfolio management, that’s false.

Not that there’s nothing to do. Investing is front loaded: the lion’s share of the work is at the start, when we are researching a potential investment and tracking performance and trying to project forward to determine our chances of success. We monitor not only the business under consideration but the industry it operates in, the competition it faces, the trends and buying habits of customers and investors stretching into the future.

But once we pull the trigger and buy ownership in that business, we should sit on our hands. Keep up, no question: economic news, business news, press releases, earnings and so on. But that’s it, the decision to become an owner of that company is in the rear-view. Now we let our investment work for us.

It’s passive.

Day-to-day price gyrations are not among the reasons to sell. If we sell because we can’t stand watching a good company’s price drop, planning to reallocate the money elsewhere or, worse, to go shopping, we miss out on the gains to come later.

By way of example: I currently one stock in particularly bad shape: my shares of Axon (AXON) are down about 50%.

Down 50%! you say. Why haven’t you given up on it!?

I haven’t sold because, regardless of the market price, Axon is effectively a monopoly hardware provider with 85-90% market share for conducted energy weapons (TASERs) and body cameras used by police everywhere. In addition, the company has successfully remade itself into a recurring-revenue SaaS business (why the valuation has taken a recent hit) with cloud storage and analysis of all those millions of camera hours. It’s had years of comfortable margins and solid profitability. It’s growing at 25-30% per year (and as I write, AXON is up 13% for the day). If the company continues to grow and make money, the shares will come back. Isn’t that be the kind of business you want to own? I might buy more.

And look, even with decades of experience I constantly have to talk myself out of jumping in to ‘fix’ the portfolio. I twiddle my thumbs and distract myself however I can. But I blow it, too: a few weeks ago I got impatient and sold a couple of small positions that were in the red; then the other day, one of them popped and I missed out. I know some individuals who only check on their holdings weekly, or monthly. I have one friend who only looks at her portfolio when the market is closed, preventing her from a knee-jerk sell order she would later regret. Whatever works for you.

Constant churn of a stock portfolio will destroy your returns over time. Better plan: go watch the game, learn a new recipe, play with your kids. The future will arrive soon enough.

Subscribe now

Leave a comment

Open any financial news site today and you’ll find two conflicting stories sitting side by side, often written by people at the same media outlet.

Both stories are true, and both are to-the-minute current. If you’re an investor trying to figure out what to do with your portfolio, the noise is genuinely difficult to navigate. It’s not because you’re unsophisticated, but because the signals themselves are contradictory.

Bull case: concentrated and co-dependent

There are legitimate reasons markets have climbed. Wall Street analysts using FactSet project S&P 500 earnings growth of 21.5% for 2026, far above the long-term historical average of around 9% and what would be three years straight of double-digit gains. (Even more upbeat figures you may have seen probably refer to the largest tech companies, not the broader index.) AI-driven capital investment is at multi-decade highs and, damn the torpedoes, shows no signs of slowing. 2025’s One Big Beautiful Bill Act is providing fiscal stimulus which is projected to further boost GDP. The tailwinds are real.

But look closely and you’ll see it: most of the confidence rests on a small number of interlocking bets— that AI investment continues at its current furious pace, that earnings continue to outperform expectations, and that consumer spending doesn’t buckle. These are less like independent forces and more like dominoes. If one falls, the others wobble or worse. And when the market’s recent success is so concentrated in the largest tech names, the phrase “S&P 500 earnings growth” is doing a lot of heavy lifting to describe what is essentially a national bet on a handful of massive companies pitching an AI future.

Bear case: broader, with independent risks

The headwinds are many and largely more independent from one another. Average tariff rates on imported goods have surged to 12-16%, with most of that burden falling on consumers (tariffs have moderated slightly in response to the Supreme Court ruling against Trump’s tariff methodology, no matter what the president tells reporters). Gasoline prices are up roughly 60% just in 2026. The opportunity gap between holders of vocational/technical credentials and those with a bachelor’s degree is narrowing, and the resulting 2026 job market for recent 4-year graduates is weak. The national debt, including gross federal debt, is at record levels and climbing: 126.8% of GDP as of today. Inflation is currently at 3.8%, also the highest it’s been in several years. And a Philadelphia Fed survey is showing projections that inflation could reach 6% later this year, due in large part to the extended closure of the Strait of Hormuz and the resulting impact on shipping and inventories.

None of these risks is likely fatal on its own. But they’re arriving together, in a market priced for perfection, carrying more leverage than usual, and held substantially by individuals who for the most part have never lived through a substantial downturn. It’s fragile.

Share Zaga Investment Co - Drifting to Fifty

A Retail floor

There’s a third force in this market, dear reader, which gets less attention than it should: you. Or more accurately, the collective behavior of millions of individual investors just like you.

Retail investor inflows into U.S. stocks hit a record in 2025, up 53% from the prior year and 14% above even the meme stock frenzy peak in 2021. This year so far looks no different. That is money flowing from individual savings to portfolio accounts to stock purchases. The pattern is consistent: every time the market dips, individual ‘retail’ investors step in and buy, providing a stabilizing floor which institutional investors like Blackrock and Fidelity and have been standing on. When those same institutional managers repeatedly sell on over-valuation worries, retail buying has been what kept the index from sliding much.

This is meaningful market participation. But let’s be clear: a retail-supported floor is not the same as a floor based on economic and business fundamentals. The collective buy-the-dip reflex works only so long as confidence holds and participants have cash to invest. It is sentiment-driven support: as I've said before, the line between investing and gambling gets thin when emotion drives decision. More recent reports show retail investors getting less aggressive, more selective, with a growing defensive tilt. If that new caution increases, one of the key props under this market could quietly disappear.

The media sounds confused

The major corporate investor voices— J.P. Morgan, Goldman Sachs, Fidelity, Deloitte— are not confused. They’re careful. An institution managing hundreds of billions of client dollars (Bridgewater’s Ray Dalio aside) cannot be loudly bearish without risking becoming the first domino in the selloff they want to avoid. So they hedge. They write things like “cautiously optimistic” and “selective positioning in quality names.” Translation: we don’t fully believe the bull case, but keep it quiet.

What appears as mixed signals from the media is largely a reflection of that institutional caution filtered through financial journalism. If you read between the lines, the actual analyst consensus leans more toward volatility or even “brace for impact” than “go all-in.”

Don’t panic

None of which means a crash is imminent. I’m not saying that you should run any seriously defensive plays on your portfolio today.

Markets have always existed in a cloud of uncertainty. The difference today is the volume: there’s simply more data, more financial content, more analyst opinions, more advertising-driven agita for clicks, and more algorithmic trading reacting to all of it in real time 24-7. What feels like unprecedented turbulence might be just unprecedented coverage of normal turbulence.

The 2007–2009 bear market was a structural crisis built on fraudulent mortgage debt repackaged and sold as investment-grade securities. That was a genuine systemic emergency. What we’re looking at today is a market at elevated valuations navigating a period of real but (hopefully) manageable macroeconomic stress.

Subscribe for Free

What to do

Ignore the headlines. Not because they’re wrong, but because they’re not written for you— they’re written for traders operating on hourly time horizons, not investors building wealth over decades.

Instead, go back to your thesis. Why do you own what you own? Has anything material changed about the underlying businesses: their revenue, their management, their product quality, their balance sheet, their competitive position? Or has the story you’re reading just gotten louder?

Pay close attention to what government and business leaders do, not what they say or is said about them. New policies, earnings reports, real hiring and firing data, profits, capital allocation decisions: these are significant. The commentary around them is mostly noise.

If your thesis is intact, so is your position. If you find that you’re struggling to articulate why you own shares beyond “they’ve been going up,” that’s a conversation worth having, just as a matter of discipline.

The financial media will continue to tell two stories at once. That’s not a malfunction, it’s the nature of a complex market where smart, informed people disagree, and the media must appeal to all of them to generate ad clicks. Your job is to stay grounded in what you actually own and why, and to let the noise fade.

Leave a comment

All those CFAs, with their dense valuation algorithms and deep data analytics and high-speed trading capacity: the more impenetrably complex and ultra-specialized their jobs seem, the more the rest of us feel we don’t know what we’re doing. We pay them because we feel lost without them. I regularly hear versions of the following:

Stocks or bonds? Hedges? Tax strategies? I don’t understand finance.

I wouldn’t know what to buy, I don’t trust my judgment on this stuff.

What’s the difference between a CD and a T-bill? How do options work?

My friend Denise works for TD. She handles all that, it’s just easier.

I have so many issues with this.

First, most of us hire an advisor because we don’t feel like we understand what to do in a sophisticated and fast-moving market. And we also hire in part to improve our investment returns, which is to say you want a professional who can goose your portfolio’s growth to outperform the S&P 500 index benchmark over time.

But overwhelmingly, they don’t: 88% of active financial managers and professional advisors can’t even keep up with the S&P 500 index over 15+ years once you’ve subtracted their fees.

Next, nearly all of them work for a larger bank or advisor entity. And because it’s good for the bank and good for their careers, most of them will push you into bank-affiliated products such as proprietary funds and in-house structured notes, rather than looking outward for appropriate opportunities elsewhere.

If that doesn’t leave a sour taste in your mouth, this will: the banks can add a sales commission for investment in those special funds and notes, which means your advisor bank is actually double-dipping on management fees! Which, by the way, makes it even more likely that your returns won’t beat the market benchmarks after costs.

My advisor only charges like 1% a year. Totally worth it not to have to worry.

Most advisors and CFAs charge a base fee as a percentage of the assets they manage for you. Let’s have a look at those costs; they’re usually between .5% and 2.5% of the asset value of your portfolio.

Even just a 1% annual fee on your invested portfolio will add up painfully fast, because fees compound just like your returns do. In fact, assuming average market returns of 7% or so and a 40-year investment timeline:

If you pay an advisor ‘only’ 1% per year for all that time, and your portfolio grows on average every year, then the dollar amount you pay grows a little every year too.

But it’s the compounding: on a $100,000 portfolio, you’d pay about $1,000 for the first year. Then, assuming no deposits and just 7% average returns, you’d have $107,000 after a year and pay $1,070 to your advisor. After 2 years, your assets reach $114,490 and you’re paying $1,145 to the advisor. At 5 years you’ve got $140,255 but you’re paying over $1,400. It racks up fast— even faster if you manage to get higher average returns.

Remember, some years your returns will be flat or negative (it happens). But don’t worry about your advisor: they get paid no matter what.

Remember also: that advisor’s compensation is based not on the success of your portfolio, but on the amount you’ve entrusted to them and their firm. Sure, the more they make for you the more of your nest egg you’ll give them to play with. But really, once they earn your trust, you’ll leave them alone and likely will end up paying for years of mediocre performance.

Crazy, right? But here’s the thing: chances are, you don’t need someone else to manage your portfolio.

For one thing, as shown by the green line in the chart, you can place your money in a simple broad-index ETF and pay a tiny fee for the brokerage’s operating costs (it takes some account churn for the fund to always match a constantly changing index). In fact as of this writing, one of the biggest broad-index ETFs, the State Street SPDR S&P 500 ETF Trust (SPY) charges only 0.095%, or about $9.50 per $10,000 of invested capital. Then you keep up with the index with no effort, and it costs you next to nothing.

Or, hire an advisor for a flat fee. They won’t manage your money for you, but they’ll look over your assets, discuss your expenses now and in the future, your work situation, maybe your retirement plan. Then they’ll come up with a comprehensive plan, make recommendations, and get out of the way. You can even go back every few years for a check-in and still reap massive savings:

• Advice-Only Network

• Directory of Financial Advisors

• 3 of the Top Flat‑Fee Financial Advisors (Wall Street Journal)

You’ve likely been told for years that investing is too difficult, too complex, that it takes years of study and hard-won experience. You’ve heard that individual investors in the stock market are about as safe as kittens crossing a freeway. That the big banks, hedge funds, and institutional investors hold all the cards and have rigged the game against you. That you need a seasoned pro to fight them. But in reality you’ve been told this because it serves the community of financial managers for you to believe this. The more people who put money in their care, the more money they manage, the more they make. Regardless of performance.

Successfully investing your own savings is not nearly as hard as they’ve been telling you. It’s about awareness of the marketplace, keeping your costs low, and most of all, patience. You’ve got this!

Subscribe now

As always, leave me your comments and write me with questions!

Leave a comment

If you’ve been watching your portfolio lately and feeling that low-grade dread when you check on software-as-a-service businesses, take a breath. What’s happening in software stocks right now is one of the more instructive moments in memory.

What you’re feeling is understandable and widespread. You own shares in companies that not long ago seemed like bedrock. But now the headlines are brutal.

• “$285 Billion Wiped in 48 Hours”

• “Your Tech Stack Is Dead: AI Will Replace 90% of Your SaaS Subscriptions”

• “The SaaS Bubble Has Burst: AI Just Made Your Moat Disappear”

• “AI Agents Are Wiping Out Trillion-Dollar Software Giants”

Sure, the sector is down roughly 20% this year. Salesforce is off 31%. ServiceNow just had its worst single day on record— down 18%— after beating earnings estimates and raising guidance. True: the company did better than Wall Street expected, told investors the future looked even brighter than previously thought, and the stock got hammered anyway.

But come on. That’s not about business fundamentals, that’s about fear. And where there is unwarranted fear, patient investors make gains.

What Is Everyone Afraid Of?

The bear case goes like this: AI agents— automated software that can complete complex, multi-stage tasks on its own— can now do the work of multiple human employees. A typical SaaS business operates on a per-human user (“per-seat”) subscription model, for decades the basis of SaaS economics. So if your team of 10 shrinks to 6 thanks to agentic AI, then you need 6 software “seats” instead of 10. Your software vendor is in trouble.

It’s a coherent and emotional argument. But it overlooks something important.

Nvidia’s chips power virtually every major AI system on earth. By any reasonable measure, founder and CEO Jensen Huang is among those with the best view of where AI is actually going. If anything, he and his business would likely benefit from an AI rout of the SaaS sector. Yet at the Cisco AI Summit in February, Huang argued,

“This notion that the software industry is in decline and being replaced by AI is the most illogical thing in the world… If you were a humanoid robot, would you use a screwdriver, or invent a new screwdriver?” — Jensen Huang, February 2026

AI is about efficiency: it will use tools that already exist rather than build new ones. And the tools it needs most— deep data systems, compliance infrastructure, workflow automation platforms— are exactly what the best SaaS companies have spent decades building. AI will plug into that.

The Actual Numbers

The gap between the reality and the narrative is striking.

ServiceNow reported Q1 2026 revenue of $3.77 billion, up 22% year-over-year, beating Wall Street estimates, with full-year subscription revenue guidance raised to $15.74–$15.78 billion. They also confirmed “remaining performance obligations” (RPO: committed but unperformed and unbilled work) showing 25% year-over-year growth. Nonetheless the stock had its worst day on record, falling 18% on April 23.

Salesforce closed its fiscal year 2026 with $41.5 billion in revenue, up 10% year-over-year, with operating cash flow of $15 billion, up 15%. Their AI product, Agentforce, hit $800 million in annual recurring revenue (ARR), while Agentforce and the company’s Data 360 platforms together showed annual recurring revenue gains of 200% year-over-year. But the stock is down 31% since January 1 of this year.

Share

Snowflake grew revenue 30% in its fiscal 2026 to $4.68 billion, with free cash flow of $1.12 billion, beat the Street’s EPS estimates in all four quarters, increased the number of customers 27%, and closed the year with RPO up 42% year-over-year. And Snowflake’s stock also is down 31%. Snowflake is the infrastructure layer where enterprises store and access their data. In a world where AI runs on data, that’s not a shrinking business. That’s the foundation everything else is built on.

CrowdStrike closed fiscal year 2026 with total revenue and subscription revenue both up 22%. New annual recurring revenue surged 47% year-over-year. But the stock is down roughly 21% this year. CrowdStrike’s argument is straightforward: as AI increases both cyber-attack avenues and capabilities, demand for best-in-class security platforms doesn’t shrink, it grows. AI makes CrowdStrike more necessary.

Do these sound like businesses being disrupted by AI? Four companies with different value propositions and different business models. One shared experience in 2026: financial performance seeing explosive growth even as their stocks get punished.

What’s Real

Here’s the distinction: not all SaaS businesses are the same. The ones genuinely at risk are the bolt-ons, sometimes just wrappers— tools that do one important but limited thing and lack structural roots into a company’s operation. Those may well get eaten by AI agents.

But to choose just two examples, Salesforce and ServiceNow: these are end-to-end operating systems for enterprises. Salesforce manages every customer relationship, every sales pipeline, every service interaction a company has. ServiceNow runs IT operations, HR workflows, and increasingly, AI deployment across entire organizations. The deeper an enterprise’s data is inside a system or a business platform, the harder it is to rip out. You don’t rebuild that infrastructure because AI got clever. You ask your existing infrastructure to work with the AI, and increasingly that’s exactly what these companies are building. These organizations don’t want to bet their operations on unproven AI-built replacements. They want stability. As a bonus, they sometimes get an AI vendor who can be accountable— or be a fall guy— when things break.

The per-seat pricing model will evolve, of course. Usage-based, outcome-based, hybrid models are coming. But pricing changes are not death sentences, they’re renegotiations. The underlying businesses are strong and getting stronger.

Yet stocks are getting sold off indiscriminately, the strong alongside the weak, because fear can’t handle nuance. While software businesses have historically traded at a premium to the broader tech sector, recent data shows this premium has evaporated, with relative software valuations dropping to decade-level lows.

Moments like this feel terrible. It’s often only in hindsight that the opportunities are clear. I’m not urging you to buy anything today. I’m saying look at what these companies actually do: are they simply tools, or are they complex deep-rooted platforms? Look at their revenue, their contracts, their AI roadmaps and ask yourself whether the stories you’re reading and the valuations you’re seeing match the evidence.

Leave a comment

As always, send me your comments! Let’s talk about it.

A reader’s comment on my previous post got me thinking about how long it’s been since a genuine recession: the Great Recession, brought on by repackaged / resold mortgage debt, which officially ran from 2007-2009. Many young people putting money into the markets for the first time have no experience with a proper downturn, as markets have been climbing furiously (if unevenly) since 2010. Even the 2020 Covid crash, a lightning fast drop of nearly 35%, turned around within a few weeks; 2020 went on to be an enormously profitable year for stock investors.

Consider the impact also of recency bias, or the tendency to overweigh recent history when making decisions about the future. Anyone younger than their early 20s today would likely have no personal memory of difficult financial times in the Great Recession. And even those who have studied economic history would probably have little fear of such an event— that sense of anxiety and dread tends to come from personal exposure.

Subscribe now

Reflect also on how investing, as I think of it at least, has changed from then to now. Nearly all resistance and bottlenecks have been removed, while enticements are sharpened:

• A huge number of people today do much or all of their own investing digitally, via smartphone app. At the moment they purchase shares they could literally be waiting in line at the supermarket, crossing a city street, or in chemistry class. Unthinkable in the early 2000s.

• The brokerage houses which facilitate stock transactions no longer charge commission on each trade; trades are free.

• There is no need to save enough to buy a full share of any desired stock, be it $100 or $1,000: now investors can purchase fractional shares. Nearly any amount can be put into the market.

• Many investing apps, including market leader Robinhood, gamify the process to make buying stocks seem fun and exciting, offering graphical fruity explosions, points earned and even free added (penny stock) shares upon trade confirmation.

• Some recent exchange traded funds— or ETFs— offer as much as 4x leveraged investment opportunities which lure buyers with huge returns on extremely narrow holdings— but often return only breathtaking losses.

Where then is the line between investing and gambling? When buying and selling is so easy, and it’s the holding that’s hard— even when it’s the holding that builds wealth. What friction exists to slow the process to ensure a touch of research, a bit of consideration, an acknowledgement of associated risk?

My colleague Jason Zweig at the Wall Street Journal explores.

It’s Getting Harder to Tell Investing From Gambling, and It’s Not Your Fault

When the stock market seems unstoppable, it’s easy to step over the line

By Jason Zweig, April 17, 2026

ALEX NABAUM FOR WSJ

The biggest danger isn’t that the markets can go crazy, but that they’ll make you go crazy, too.

The war in Iran is a seething stalemate, the price of oil is up about 60% this year, inflation jumped to 3.3% in March—and still U.S. stocks set all-time highs this week.

A kind of gambling fever seems to be setting in. In February and March, asset managers filed to launch dozens of exchange-traded funds that would seek to quadruple or even quintuple the daily returns on stocks and other assets, even though regulators have reportedly indicated they might not be approved. On prediction markets, you can bet whether the price of bitcoin will go up or down in the next five to 15 minutes—24 hours a day.

The line between investing and gambling has always been a bit blurry, but it has never been easier for investors to step over the line without even realizing it. You need to be on guard not only against the craziness of this market, but the possibility that you won’t be able to resist it.

Your mind plays all kinds of tricks on you when geopolitical events go haywire. You probably think the stock market has been wrenching up and down like mad since the Iran war started at the end of February. I certainly did.

In fact, U.S. stocks have been less volatile than usual. The S&P 500 has swung at least 1% between its intraday high and low on 40 days so far this year. Through the same point in April, that happened 49 times in both 2023 and 2025, and 63 times in 2022, according to Dow Jones Market Data.

On the other hand, it has been hard to ignore the lurching price of oil. Since the war began, it has moved by an average of 4.9% per day (up or down). That’s nearly triple its average daily fluctuation over the previous five years.

For investors, the war has unfolded against the backdrop of the almost universal adoption of index funds that are cheap as dirt and easy as pie. These investment building blocks—and the seemingly unstoppable rise of the stock market—have made making money feel effortless.

You need to recognize that all this may have made you more receptive to taking big risks.

In economic theory, your attitude toward risk is supposed to remain stable, and you’ll use all relevant information when making investment decisions.

In the real world, your attitude toward risk depends partly on who you are, but also on what you’ve lived through. And the data you’ll rely on is a mix of recent history and whatever stands out most vividly from your own experience.

The last brutal bear market in stocks ended 17 years ago last month—most of a lifetime for many young investors. Between Oct. 9, 2007, and March 9, 2009, the S&P 500 lost 55.3%, including reinvested dividends. That bashed every dollar down to less than 45 cents. The S&P 500 didn’t recover and stay above its 2007 high until the end of 2012.

Since then, thanks largely to aggressive monetary and fiscal policy, every decline in stocks has been an if-you-blinked-you-missed-it kind of event. The Covid crash of 2020 lasted only five weeks, then morphed into a raging bull market. In 2022, U.S. stocks lost 18%; by late 2023, they moved on to record highs.

The younger you are, the more influence those recent returns will have on you—because you haven’t been investing long enough to have experienced markets that go down and don’t bounce right back up.

Research conducted by economists Gene Amromin and Steven Sharpe shows that, in boom times, investors expect higher returns at lower risk.

Ulrike Malmendier, an economist at the University of California, Berkeley, has found that one of the biggest factors in your expectations of future returns is whether you’ve lived mainly in a time of rising, falling or stagnating stock markets.

Her research shows that people who—by the accident of their age—experienced a one-percentage-point higher annual return on stocks expect to earn a 0.6-to-0.7-point better return on their portfolios than those who earned lower past returns.

Conversely, down markets depress investors’ expectations. A survey of hundreds of Barclays online brokerage clients during the 2008-09 financial crisis found that their willingness to take risk shriveled as the stock market crashed. From September 2008 to March 2009, they went from being willing to invest an average of 56% in stocks to only 46.5%.

Yet the same people clung fiercely to their self-image as gutsy investors. In fact, slightly more people described themselves as “a financial risk-taker” in December 2008 than three months earlier, even as they had already reined in the risks they were willing to take.

As investors, we are all prisoners of our past, especially the recent past. But you need to recognize that fact, so you become aware of how it can skew your decisions.

With the stock market marching upward as if all is right in the world, and with gambling behavior becoming the norm around us, it’s more important than ever to ask yourself a few questions before you make any trade.

Here’s a simple checklist: Have I segregated this account from my long-term investments? Am I trading to make money or to have fun? What do I know that the person on the other side of this trade doesn’t? How do I know it? Am I willing to keep track of all my trades to see whether I’m making money on them overall?

You won’t fall into a downward spiral of impulsive trading if you require yourself to pause and think before any gamble.

Copyright ©2026 Dow Jones & Company, Inc. All Rights Reserved.

Jason Zweig writes The Intelligent Investor column every weekend for The Wall Street Journal.

I have often quoted Warren Buffet’s famous line to “be greedy when others are fearful, and fearful when others are greedy”, including in News or Noise? in 2024, and in Why Aren’t You Back in the Market? in 2022. I bring up that quotation repeatedly because it’s one of the statements I repeat most often to myself in times of stress. Like right now.

Right now— April 16 2026— the broader markets are hitting new records after recovering from steep declines earlier this year. But the hair on my neck is standing straight up: something is wrong. I’ve been doing this a long time, and this doesn’t add up.

A soaring market is a sign of investor confidence. To reach new valuation highs investors need to see that consumers will keep spending and that corporate profits are on the upswing. They need to feel like global supply chains are generally stable, moving necessary inputs to and from manufacturers and then getting those goods into the hands of customers. To believe that powerful industrialized governments are largely moving together, or are mutually supportive politically and economically. To believe deadly and costly regional military conflicts are unlikely.

Which of course is not the case at all in this moment: war dominates the Middle East, enveloping both friends and foes of the United States. The Straight of Hormuz is effectively blockaded by a combination of Iranian undersea mines and US military intervention. Relations between the US and the European Union are strained (also true of the US and NATO, and the US and Canada, the US and China …). Fuel prices are abnormally high and inflation is climbing. Hiring has slowed and layoffs are rising. The US housing market is clogged.

Few of the usual factors for a climbing market are in place; many are showing strain. Stocks simply should not be reaching all-time highs right now. Why is everything up?

Indicators to explain something so unusual are few. Theories include mass automated traders triggering in response to small movements; short sellers feeling overexposed and buying to cover losses, forcing big swings; FOMO of less-informed, less-rational retail investors proving to be a greater force than was understood. Sure, businesses are surprisingly profitable amid all the global craziness, and investors buy success. But that’s never been enough to drive the markets all by itself.

Returning to the Buffet line, maybe that means it is a time not for enthusiasm, but for caution.

Returning readers will note that I have detailed exactly 4 reasons ever to sell a stock. At a glance, worry about overpriced equities in the face of global instability is not among those reasons.

But this is an unusual moment. We can make room among those reasons: call it ‘rebalancing’ our successful asset growth into more diversified holdings. Or call it ‘thesis changed’ in the face of too many negative indicators.

I like to believe I am nearly always a net buyer of stocks, that I don’t make decisions about my assets based on anything other than the fundamentals of the businesses I wish to own and keep for years to come. But the reality is more nuanced. Sometimes, timing does matter.

Contact me to chat up your theory, or share your thoughts!

—Robin Rifkin, April 16 2026

But Apple then completely squandered that ray of sunshine: over the nearly two years since that announcement, the promised overhaul and nearly all the visible new tech has been continuously delayed. As of early 2026, the rollout has described as a disaster, a train wreck, a massive self-inflicted wound, with frequent delays to core promised features.

All the other hyperscalers (Google, OpenAI, Meta, Amazon, x.AI) have been spending hundreds of billions on developing their own AI technology and data centers, dipping deep into their cash flow and even borrowing to do so. Apple clearly dithered and now will be partnering with competitors across multiple AIs to accomplish the same or similar goals.

So was it desperation at being left on the starting line? Or something far more shrewd? The answer could define the business for years to come.

Horace Dediu at Asymco One explores this tantalizing possibility.

As always, reach out to me for thoughts, discussion. I don’t charge for my time and I love to kick ideas around!

Robin Rifkin, April 9, 2026

You have the discipline to eat right. You have the discipline to exercise regularly. The discipline to do your best at work. To be loyal in your relationships. To act kindly and politely towards others, to give to those less fortunate, to worship. You learned each of these over time. They are habits.

Investing too is a Habit. Treat it like one.

Nobody is born a good investor. Nobody wakes up one morning, opens a brokerage account, and instinctively knows what to buy, how long to hold, when to sell, and when to do nothing. Good investing— like good eating, exercise, or even basic courtesy— is a practice. Something you build, repeat, and refine over time until it becomes second nature.

That’s not a popular thing to say, because people prefer the idea of it being an instinct, born with a nose for the market. We love stories about the guy who bought Apple in the 1990s because he just knew. But that story leaves out the years of reading, the emotional roller coaster, the bad calls, the developing of judgment, the building of wisdom. There’s no shortcut. There is only the work, performed consistently, over time.

Think about what it actually takes to exercise regularly. Not to run a half-marathon once, but to keep showing up several times a week, year after year, regardless of motivation or mood or schedule or weather. At first it’s uncomfortable. You’re awkward, you’re sore, you’re pressed for time. But somewhere along the way it becomes routine— and then it becomes hard to not do. You’ve built up the muscle. The discipline is the thing.

Investing works exactly the same way.

The mechanics are not complicated: buy pieces of good businesses at reasonable prices, diversify intelligently, don’t react to short-term noise, let compounding do its quiet, relentless work. This is hardly secret knowledge. What separates investors who actually build wealth over decades from those who don’t isn’t access to information or clairvoyant timing. It’s learned behavior. Specifically, it’s disciplined, repeated behavior applied consistently over many years— exactly like an exercise regimen, exactly like maintaining nutrition.

Most people who fail at investing do so not because they picked the wrong stocks. They fail because they sell at the first sign of trouble, or they never developed the habit in the first place. They never made it routine to set a little aside each month. They never made it second nature to check in— not obsessively, but regularly— on what they own and why. They never practiced sitting on their hands when every headline was screaming at them to panic. These aren’t natural abilities. They’re learned responses, trained over time.

And just as with fitness, the most important day is not the day you run your fastest mile. It’s the day you didn’t feel like it, and did it anyway. When the market is down 8% and everything feels precarious and the news is incessant and grim, that is the day the habit earns its keep. Not by telling you what to do but by keeping you from doing something you’ll regret.

There’s a social dimension here too. Being polite and respectful when you genuinely aren’t feeling it is a discipline, one that most well-functioning adults master because it smoothes their lives. You do it not because you’re always in the mood, but because you understand the long-term value of the behavior. Investing is no different. The discipline is not about enthusiasm. It is about understanding that the short-term discomfort of staying the course— of not reacting, not selling, not second-guessing— is what produces the long-term result.

So if you’re trying to get better at this, stop waiting for inspiration, or certainty. Start building the routine instead. Read a little, every day. Review your holdings on a schedule, not when panic strikes. Set up the automatic contribution from your paycheck and leave it alone. Make the small, deliberate choices consistently, and let time do the heavy lifting.

You’re not seeking a prodigal talent. You’re building a habit. The difference is everything.

It is such a delicate time right now. Events that typically tank the markets— war, inflation, political instability, corporate or societal upheaval, unemployment— have done damage but have not in fact crashed anything. And a traditional hedge, gold, is up substantially in the past year but is down from its peak.

This is a moment for caution. I’ve spoken to a number of younger investors who have only ever known a bull market and for whom “SaaS-pocalypse” is a terrifying concept (What do you mean, tech companies don’t always rise??). Everything they see ignites a new fire to be dowsed, or urges them to take action. I counsel they take a breath, do some more research, let the moment pass. See what unfolds.

Turns out patience is not a predominant Gen-Z character trait.

My colleague at the Wall Street Journal, esteemed columnist-author Jason Zweig, just posted a piece on what investors should expect, no matter the outcome of the Iran war. It’s smart advice and I urge you to give it a read. I’ve republished it below.

How to Trade the War: Avoid gimmicky strategies and overheated assets

Investors have to fight the urge to make big moves as the war in Iran rattles markets

By Jason Zweig, The Intelligent Investor, Wall Street Journal, March 20 2026

Nobody can know for sure how the war with Iran will affect investments. But I’m quite sure I know how it will affect investors.

You will be blitzed with opportunistic marketing messages from the financial industry. You’re going to be urged to keep your money safe from war and inflation—or to capitalize on them—with these funds, this asset, that industry, these AI-driven recommendations, this secret set of trading signals, these proprietary algorithms. All for a small fee, of course.

With no end to the war in sight, investors should be on the defensive—not only against the bad news the war could bring, but also against the bad ideas the financial industry will be pitching.

The assets most likely to benefit during wartime are already expensive. If you didn’t buy an umbrella while the sun was shining, that protection will cost you dearly now.

And sudden moves based on anybody’s geopolitical forecasts are a bad idea. The U.S., Iranian and other governments have themselves been surprised by many of the twists and turns of this war so far.

An “excursion” that the White House expected to lead to a quick collapse of Iran’s theocratic regime has already lasted for weeks. Leaders of states in the Persian Gulf, The Wall Street Journal reported this week, now want Iran’s military rendered incapable of further attacks.

A lot of money is already in motion.

Leading defense and aerospace stocks such as Lockheed Martin, Northrop Grumman and L3Harris Technologies are each up at least 24% in 2026.

With the price of crude oil up 67% this year, exchange-traded funds investing in energy stocks have attracted more than $7 billion in new money, according to FactSet, with $2.3 billion gushing in since the beginning of March alone.

ETFs investing in gold have attracted $1.5 billion so far this year, with broad-based commodities ETFs drawing in another $2.4 billion.

All this is based on observations so obvious they’re hard to resist: War requires weaponry, the supply of oil is being choked, fear and uncertainty inflame the demand for gold.

But the market prices of stocks and commodities have already absorbed the obvious.

The companies in the iShares U.S. Aerospace & Defense ETF, for instance, are trading at an average of 41.5 times their earnings over the past 12 months, more than 50% costlier than the stock market as a whole—with many near all-time-high valuations.

In 2022 and 2023, the stocks in State Street’s Energy Select Sector SDPR ETF traded at an average of eight-to-10 times earnings, according to FactSet; this week, they were valued at 22.4 times.

Gold, up 51% in the past year, remains near a record high, even after falling 12% this month.

Gold’s retreat could be a sign that the fear trade may already be partly receding. Since March 2, the first trading day after the war started, defense and aerospace ETFs have lost at least 5%.

After all, what’s about to happen next in a war is one of the hardest things in the world for investors—or policymakers—to predict.

Mark Higgins, an investment adviser at Irvine, Calif.-based IFA Institutional and author of “Investing in U.S. Financial History,” a book that chronicles markets from 1790 to the present, has a suggestion. He offers an excellent question to ask if anyone urges you to make a major portfolio move based on a prediction about where the war is headed.

“How can you say that,” Higgins suggests asking, “when the governments themselves don’t know what’s going to happen next?”

That should shut down whoever is trying to wheedle you into gimmicky strategies, or chasing the returns of recently hot assets.

This is a time when a good financial adviser should be trying to talk you out of taking drastic action, not urging you into it. Selling a few losing investments to offset taxable gains elsewhere could make sense. Making wholesale shifts in response to fears that might never materialize doesn’t.

If you’re worried that the war could send inflation skyrocketing, consider I bonds or inflation-protected securities from the U.S. Treasury.

I bonds, which you can buy only through the Treasury directly, are yielding 4.03%; that semiannual rate will be reset on Apr. 30. You can buy Treasury inflation-protected securities directly from the government, in a brokerage account or packaged into a mutual fund or ETF. They’re still offering decent returns of roughly 1% to 2% over the official inflation rate, depending on maturity.

Before this war is over, it’s likely to generate a lot more surprises—positive and negative. Even if you don’t feel nervous now, unexpected setbacks in the war could later make you vulnerable to a fear-based marketing message.

Surprising events and negative news can always tempt investors into suddenly adopting radically different strategies: fast trading, market timing, ultrahigh dividends and other techniques that purportedly reduce risk or raise return.

That’s why I want to recommend a quirky, metaphorical way of thinking about investing when uncertainty is this high.

You should think about overhauling your portfolio the way people should—but often don’t—decide about adding tattoos or body piercings.

If you get a stud in your navel or a little tattoo on your ankle, you aren’t likely to look back later and kick yourself. If, however, you get a jumbo ring in your nose, or “I Love Mike” or “Lisa and Me 4Eva” inked across your entire chest or back, you might end up wondering what on earth you were thinking—and unable to undo it without some discomfort.

Big, sudden portfolio changes are like that: easy to put in place and hard to reverse. Whatever you do if this war worsens, you should avoid doing anything that can’t be easily and cheaply undone.

Subscribe now

In actuality there are many sorts of investment risk: business risks, concentration risks, diversification risks, market, currency, timing, macroeconomic, and so on. Literally no one can be safe from all the possible dangers. If you choose to get out of the market altogether, you’re still facing inflation and opportunity cost.

What to do?

The short answer is to embrace the uncertainty. That’s what investing is: periodic payments (dividends) and asset appreciation over time in exchange for the risk of depreciation or loss. High returns require increased danger; lower returns for decreased danger: the infamous risk-reward ratio.

Let’s have a look at what these risks actually are, and just as important, what they are not.

Business Risk: When you buy a share of stock to hold in your portfolio, you are buying a tiny slice of a business. You become an owner of that business. And you are an owner of every action that business takes, from buying materials to making widgets to selling those widgets, from borrowing capital to build a factory or hire staff to expanding into global markets under myriad local laws and regulations. Companies take risks all the time to conduct business. Some are tiny, some are enormous. Shareholders ride along. So if the company overborrows, or runs afoul of a law, or gets sued for a dangerous product, or suffers a scandal, etc, shareholders own that misstep.

Concentration Risk: Simply put, every investor needs to own more than just a couple of stocks. You want to avoid overexposure to a single business, industry or geography to prevent dependency on the performance of any single asset or class (see Business Risk).

You might own only Nvidia and Netflix, kings of their industries, and you’d probably be feeling pretty great the last few years. But their growth rates will slow (Nvidia already has) and if you don’t expand your portfolio you’ll suffer for too much concentration on those two industries if anything goes wrong with your thesis or if the situation changes. No business stays on top forever.

Diversification Risk: The opposite is also true. Passive investors don’t like to hear it, but the numbers don’t lie: in an in-depth study, updated in 2023, Hendrik Bessembinder of Arizona State University found that 0.3% of businesses were responsible for half of the entire stock market’s total gains .. since 1926.

https://paretoinvestor.substack.com/api/v1/file/809c2545-a782-4485-b71f-1a1aaf7e49fc.pdf

You can be overdiversified. On the one hand, owning the entire S&P 500 via an ETF like SPY is a harbor safe from the mistakes of any one or two businesses dragging down your entire savings. But conversely, any one or two market-crushing rocketship stocks, which drive the performance of the entire index, will see that performance diluted by the vast majority of companies which appreciate more slowly or even depreciate over time.

Currency Risk: Americans own mostly American stocks, purchased and denominated in US dollars. But broadly speaking, S&P 500 companies derive roughly 40% of their revenues in international markets. Which means if the US dollar strengthens against other currencies, then the dollar-translated earnings of multinationals like Apple, Microsoft, and Caterpillar compresses, shrinking earnings and valuations.

Share

In the first half of 2025, facing of slowing global growth, new Trump tariffs and a fear of Federal Reserve Chair Jerome Powell’s firing, the US dollar weakened by nearly 11%, ending a 10-year rally. In that case, the weakening dollar improved foreign-derived revenues to the S&P 500. But since last August the dollar has been strengthening again and now sits about 4% below its highs. These fluctuations impact earnings and stock prices and go in both directions, creating volatility and uncertainty generally ignored in smaller economies with reduced global exposure.

Expense Ratio Risk: Naturally many people pay others to invest and manage their money. A typical expense ratio for an actively managed fund or personal portfolio is 1.00-1.25% of total assets, charged annually. So, in round numbers, a $100,000 portfolio costs $1,000 to manage. But as assets grow, so does the cost to manage them. Over time, like the money in the portfolio, this dollar figure can increase massively. Depending on your average return, in 20 years that 1% annual fee will eat close to 20% of your total asset value. Be mindful you’re not overpaying others do what you could do yourself.

Macroeconomic Risk: There are always factors much larger than the business or the industry your stock inhabits which can negatively impact your investment. Political and geopolitical instability, trade tariffs, exchange rate fluctuations, interest rate changes, inflation or recession can all remove not only the argument for one particular investment but can dent almost any investment in the short term as even ‘safety’ plays sometimes get caught in the storm.

In practice, the terms “macroeconomic risk” and “economic risk” are most often used to describe the possible consequences from investing in untested foreign markets, especially those with a history of political upheaval or governmental corruption. But as we’ve learned in 2026, these risks can be real and damaging even inside our own borders.

Timing Risk: You’ve probably heard the old saying, “It’s not about timing the market, it’s about time in the market.” That’s overwhelmingly true— the vast majority of individual investors pull their money out too soon due to fear of a downturn, or impatience with their progress, or they wanted something shiny (fancy cruises, elective cosmetic surgery). Had they left the funds in place they would have seen their capital grow substantially over time, in part due to the power of compound interest. However, it is also true that investments sometimes flail for years due to factors beyond anyone’s control: a company gets squeezed by a competitor, it introduces a particular product too late, it suffers legal trouble, it grows too fast (or too slow), etc. What might have been a great stock to pick up a few years earlier or a few years later turns out, at a particular moment, to be a mistake. It happens.

Market Risk: What worries most people when they are deciding when or how much capital to put to work is market risk. Those not in the market, or barely in, will describe their concern that at any time the market could drop (war, recession, pandemic, etc). That it’s like gambling, they could lose all their money.

Sadly, most folks look no further. Instead they’ll leave their money in a checking account or a coffee can earning nothing, which means their buying power drops 2-4% per year to inflation. Or worse, they’ll spend it on a depreciating asset, like a car or a leather handbag.

Most people misunderstand market risk. They confuse the risk of owning shares of a particular business with the risk of owning a diversified basket of market stocks like an S&P 500 ETF. They fear that, absent a willingness to get deep into the weeds of investing or at least a ‘professional’ financial planner, their hard-earned dollars will disappear even if they do everything right. So they do nothing.

I understand. Basic investing concepts such as expectation and risk management, the power of compounded interest, and opportunity cost are straightforward enough, but most American high schools offer no financial education. And unless you major in Finance or Business, there’s precious little in college either. Most people are left to sift through a million messages lobbed from social media, financial TV, online newspapers, billboard advertising, and the painful personal anecdotes of their friends and colleagues. The takeaway is that investing is complicated, difficult, hazardous.

But it doesn’t have to be any of those things. Yes, the market swings wildly day to day, lately more than ever. Some years, like 2022, the broader market drops 20%. And some years, like 2024, it rises 25%. But that’s the thing: If you’re in the stock market, now and then your portfolio will shrink. It’s unavoidable. But patient investors know that over time, the market rises. Absolutely always, no matter what, just wait. On average, the market rises at least 2 years out of 3. So however bad it looks up close, however nauseating the ride day to day, step back a bit and things smooth out. Hold that in your head. Endure the short-term drops and stay with it, and you’ll find that investing can actually be quite simple and extremely profitable.

Of course, it is in the interests of Wall Street brokers and financial managers everywhere to hide that information. They want you to continue pay them to sort, advise, and manage your money. I expect that the democratization of information will ultimately come to finance, as it has to automobile sales, taxi service, travel booking, and other industries. But until then most folks will be left in the dark. So let’s be very clear.

Owning shares of any one business is risky. There are no two ways about it: an individual shareholder has almost no power to sway the outcome of that investment, so whatever happens to that company will affect them. The business could fall out of favor (Macy’s, Neiman Marcus, Nordstrom). It could be targeted for legal action (Google). Its products or services could change or be upended by a competitor, customer, or regulator (Apple vs Sony, Apple vs Epic Games, Apple vs the EU ...). Or its entire business model could simply cease to be relevant in a fast-changing environment (Blockbuster, Blackberry ..). Those risks are real and they are substantial. When you buy that stock, you are placing your faith in the management of that company to shepherd the business, and your money, to greater heights. But no one can see the future and things do go wrong.

Share

By contrast, however, owning a few shares each of 20 businesses reduces risk. Things that go wrong at one are unlikely to affect the others whose stock you hold. One business could hire a new CEO who drives things completely the wrong way and that stock could tank (Bob Chapek at Disney, 2020-2021). But your other businesses will be fine, so the overall financial risk of ownership is reduced. (Assuming, of course, that you’ve avoided Concentration Risk.)

And by the same token, owning shares of 500 businesses, as one would when buying shares in a low-cost S&P 500 index fund like the SPDR S&P 500 ETF (which I’ve discussed before), is virtually bulletproof in terms of the likelihood you’ll lose it all— though you’ll still suffer Diversification Risk which likely would hold back your returns. So find the sweet spot for you: enough risk to get real returns, not so much your worry keeps you up nights.

Reminder: in previous posts I’ve talked about only investing money you don’t need for a minimum of 5 years, but preferably for 10 years or longer. We’re talking about an elementary schoolkid’s college fund, or your retirement. You’re playing a life-long game. Don’t forget: no matter the short term, no matter any given moment in time— in the long run, the S&P 500 goes up. It just does: I know this because, except for a brutal few years 1929-1932, it’s basically been rising since George Washington won the presidential election in 1789 (unanimously, by the way).

Advisors and financial planners everywhere describe the stock market as dangerously volatile, and more so lately. They tell their clients not to allocate too much to stocks, because on any given day that clients need the money, their assets might be down. They urge diversification, they recommend bonds and real estate and gold and so on. But no other asset class offers the typical passive investor a long term average return of 9-10% per year (over the past 100 years) for doing nothing. Because the broader market certainly goes down but it never stays down. If you own a big basket of stocks, or a broad indexed ETF and things fall, don’t sell. That’s why it’s so important that you only invest money you don’t need for awhile; by definition it’s long money. Reign in your fear and stay the course. The market will rise if you wait it out.

Understand what is and what is not a risk. Buy a handful of dominant rising stars, and add that S&P 500 ETF. Then sit tight.