There is always a risk in writing quarterly editorials in that the time between writing, and the time of publication/reading is a few weeks, and in that time, it is entirely possible that prevailing circumstances may have changed materially, rendering views obsolete, or worse yet, incorrect when viewed through the lens of hindsight (as Warren Buffet says, when it comes to investing, the rear-view mirror is always clearer than the windscreen!). This dynamic seems to be heightened currently, in that we are seeing an extraordinary amount of uncertainty around global geopolitics. We try not to get political in this newsletter, but irrespective of one’s views, it won’t be a controversial statement to say that the Trump administration has torn up the traditional playbook around economic policy, and this has created massive uncertainty in markets. Whether the approach will rebase global economics for the better, or whether the “America first” approach will backfire spectacularly remains to be seen. While partisan commentators (and it is important to be aware that there seem to be fewer and fewer non-partisan, unbiased views being put forward) will argue the short-term data as proof of one outcome or another (to suit their world view), the truth is that it will take time to see what the impacts are. As such, we find ourselves mired in a speculative space with emotions (despair and fear on one end of the spectrum as we saw in April around “Liberation Day”, and euphoria, hope and blind optimism on the other, where markets potentially find themselves currently, just 4 months later) driving markets.
 
Add to this the AI phenomenon. There is a massive amount of investment and capital flowing into this space, and it is ultimately the expectation (hope?) that the mindboggling amounts of money going into AI development will deliver outcomes (productivity gains, revenue growth, profitability) that reward investors over time. There are parallels to the “dotcom” craze of the late ‘90’s early 2000’s – market participants seem willing to pay massive premiums today, for the potential that it represents, but with limited proof as to what the outcome will be. To contextualise this, the average PE of the Magnificent 7 (which are a group of 7 mega cap tech stocks) sits at 45 (meaning investors are willing to pay for 45 years’ worth of earnings).

Did the internet change the world? Certainly. But what the Dotcom bubble taught us is that “investment at any cost” seldom ends well, irrespective of how revolutionary a trend may be.
 
So, when one adds the massive uncertainty that we face on an economic policy level, with the speculative behaviour we are seeing around things like AI, the net result is a pendulum effect. Markets are vacillating in short spaces of time between panic and fear (think of what we saw in markets in April) to euphoria and speculation (what we are potentially seeing at the time of writing).  As investors, this is an extremely challenging environment. If we had the benefit of the rear-view mirror approach to investing, we would use this pendulum to our advantage, but the reality is that we don’t.  As noted in my last editorial (which was right in the middle of the “Tariff Tantrum”) that we shouldn’t panic as investors, similarly, we shouldn’t get sucked into the irrational euphoria that markets can also display when the pendulum swings.
 
So where does that leave us as investors?

The key is to try and look through the noise and focus on the fundamental truths of investment.

I follow a great blog: https://bilello.blog/ - specifically this blog article which has a superb piece which is worth summarising:

• Markets can be punishing in the short run, but over time, they have been incredibly rewarding. Despite all the difficulties we have seen in markets, ranging from the Great Depression in the 1930’s through to COVID in the 2020’s (and there has been so much in between) markets have persevered and triumphed.
• Crisis is the constant – if you’re waiting for the perfect time to invest, you’ll be waiting forever.
• Volatility is the price of admission – market corrections aren’t bugs, they are features.
• Pessimism can be expensive – being perpetually bearish may sound smart, but can be a costly approach
• Innovation & Human progress – the greatest tailwind to investing. Markets ultimately reflect this progress.

Investment is a long-term process that requires commitment, patience and not a small amount of resilience. Even though we may feel like we are on the precipice currently, if we can focus on some of the lessons that history has taught us, it helps us look past the noise.