Sand dunes

Twenty-six years ago, in the fall of 1999, I sat, as I do today, writing to clients about our investment positions in an era of tech stock euphoria. In 1999, I thought tech enthusiasm was overdone, and I am going to argue the opposite in this letter. 

Yet before I get to our current positioning, I want to point out that the dotcom bubble made a fool of almost everyone at some point. This AI euphoria will likely do the same. During the dotcom era, getting out too early had what felt like disastrous consequences: Between the start of 1995 and March 2000, the Nasdaq Composite increased almost sevenfold. Getting out too late also felt disastrous: The Nasdaq fell almost 80% from its peak before bottoming in 2002. 

But while it was almost impossible not to get things badly wrong at least for a time, it was also not impossible to survive and prosper. When the Nasdaq started to plunge in 2000, US REITs, Treasuries, gold, and oil traded flat or higher. Furthermore, by the time the bubble was all said and done, it still hadn’t paid to go against the internet. Between the start of 1995 and the end of 2002, the Nasdaq Composite delivered a respectable average return of 7% per year.

What do these lessons hold for today?

First, it’s nearly impossible to time the market just right; investors should make sure the success or failure of their long-term plan is not dependent on doing so. An important part of this is staying focused on one’s investment goals. 

Second, in the end, missing long-term trends can be far more painful than enduring short-term drawdowns. The dotcom bubble and crash look like a blip on the chart from today’s vantage point.

Third, while markets can be subject to potent forces with ramifications across all asset classes, investor portfolios do not need to be completely beholden to them. We believe it is important to have exposure to artificial intelligence (AI). We also believe it is necessary to diversify portfolios beyond it.

In the remainder of this letter, I explain why we believe this bull market has further to run, describe the forces within and beyond AI that we think will drive it, and highlight where we see the best tactical opportunities in markets today. 

But while a part of my job is to keep our clients updated on our tactical views, the most important part is to help them protect and grow wealth in the longer term. So I conclude with some thoughts on how we think investors can put ideas to work in a way that can allow them to benefit if we’re right about the AI boom, manage losses if we’re wrong, and stay on course to prosper in the long term.

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