Don't Worry About Bubbles, Look for Opportunities...
November 8, 2025
I was tempted to begin today with the truism ‘The more things change…etc.’ Fairly certain that I had used it previously, however, I resisted. I try not to repeat myself. Still, several aspects of market activity and analysis keep reappearing and repeating – in particular, the endless debate on valuation and the existence – or not – of a bubble, as well as the frenetic investing activity jerking the market averages around. Today, (11/7), for example, the market averages opened down and continued so, the decline reaching more than 1% at its lowest, the Nasdaq down almost 2%. Then suddenly an unexpected reversal, the day ending with several of the averages in positive territory and the Nasdaq’s decline just 0.2%. If you are a trader, you love the volatility. If you are an investor, you need to look through it, focus on the long-term horizon, and control your emotions.
The question of whether or not the markets are in a valuation bubble strikes me as useless conjecture, the debate a waste of time and energy. If you listen to the debates at all, you will be reminded of one of Mark Twain’s pithy observations: ‘There are lies, damned lies, and statistics.’ Everyone has their favorite data points to justify their view. Some securities do appear very optimistically valued. Stocks that are AI related or dependent, including some of the market behemoths, fall into that category…they are very impactful on the averages though few in number. And of course there are the meme stocks that are keeping some of the retail gambler/traders engaged. Those are hardly the whole story.
Comparison to the dot.com bubble have also been repeatedly raised. Back then Cisco, one of the leading stocks of the day, traded at 100x earnings with mid-teens percentage growth. Today, Nvidia, the current market leader and investor darling, has a multiple in the low 30’s while the company projects 80% growth. Earlier this week data showed over 30% (and surely higher now) of the S&P 500 stocks were down more than 20% from their highs, over 60% were trading below their 50-day moving average. Not really a bubble, is it? A lot of the froth seems to have already been taken out.
The economy has pockets of real strength and areas of weakness… investors should focus on finding the opportunities, not worrying about bubbles. For instance, the energy and healthcare sectors – both important parts of the economy – have not participated equally in the market’s rise – there are surely good investment options there, not to mention the fact that equities in those niches often have excellent dividends as well. Pay attention, engage with your advisor, control your emotions, look for good ideas. Time in the market, not ‘timing the market’ is the ticket to success.
As we mentioned previously, it is difficult to predict the ultimate winners and losers as AI remakes both the economy and the investment landscape. Similarly, unanticipated concerns and bottlenecks in the roll out of AI will also appear. The link below to an article in a recent New Yorker, discusses one of these aspects – the behemoth data centers being constructed around the country. (As a result of the sudden surge in construction activity, Caterpillar’s stock, previously kind of moribund with the decline in energy prices, has doubled since April…an unanticipated winner.) The centers will consume lots of energy and ignite a debate over the cost of electricity which is projected to rise dramatically. There will be other issues surely… this is just the most immediate to appear. And you will learn a little more about what goes into enabling the incredible aspects of artificial intelligence that we are only just beginning to engage.