Nov Portfolio & Market Review
Welcome to volatility after the election and the “day the AI bubble burst!” Or did it? I contend the first crack in the AI bubble began a few weeks ago when Intel reported weak guidance and the stock crashed -20% on the day. Last week we saw a MASSIVE unwinding of the AI trade from chips (NVIDIA) to nuclear power (OKLO, GEV) to building materials (NUE, MLM) – all because of fears that data center buildout will decline after a democratic sweep in the elections. Most notably in Texas, the 2nd largest hub for data centers, saw a democrat, who has espoused the death of any new data centers, become governor.
Time for a reality check. The entire AI euphoria has become overblown, and stocks were overvalued in my opinion. Reiterating my concerns from a Sept 25th email:
My overriding message is we are entering a period of potential setbacks in the stock market and economy in general. I dare not lay out a crystal ball prediction of what/when something could transpire, but do say with confidence, caution and prudence are merited here.
This prudent, cautious tone served us well over the past week as our portfolio declines were much less than the overall stock market losses. We took a hit for sure, but the overweight in bonds, which has been a drag on performance, proved worthwhile.
We are now faced with a decision as we saw the worst decline in stocks since the Tariff Day selloff in April 2025. During that period, we did not sell and run for the exits. We maintained our strategy and outperformed the market by yearend. I believe this “Minsky moment” – a sudden, major collapse of asset values that can mark the end of a growth cycle – is an opportunity to rebalance our positions and potentially add to the overall market using the ETFs SPY (S&P 500) and QQQ (NASDAQ 100).
However, this strategy comes with a caveat: I’m not sure this decline has run its course. Harken back to 2018, after the midterm elections in November when the market initially rose and then dropped the rest of the year. The rebound we’re seeing now is the inevitable pendulum swing after a 4-5% loss in a single day. I believe the next major catalyst for a move is “What happens with Iran?” Trump now has a 2-month window to make a major move: bomb Iran’s remaining nuclear site at Pickaxe Mountain and potentially other targets OR make concessions and accept a truce. I believe we will see more clarity over the next week and be ready for a potential rebalance of our portfolios.
We are parsing through quarterly reports to have a clear understanding of each portfolio position’s strength/weakness. Again, much of what we saw recently was emotional reaction – we are focused on reality, and that is a company’s fundamentals in their model, cash flow, and financial ratios. If they remain strong, great; however, if they have weakened, it is time for a change.
