adriant

adriant

  • Joined: December 24, 2025
  • Articles: 493

Are We in an AI Bubble? 

Investor enthusiasm for AI is reminiscent of the Internet boom circa 1995. Having worked at Google, I've seen AI's profound impact firsthand, from computer vision to self-driving Waymo vehicles that have achieved 10M rides. But as an investor, the focus must shift to economics: business models, monetization, and valuation. Billionaires like David Einhorn are sounding the alarm: spending hundreds of billions on AI infrastructure may lead to massive capital destruction if CapEx vastly exceeds consumption. History shows that while the technology transforms society, an oversupply creates painful market corrections. The question isn't if AI is the future—it's what price you pay for it.

Jay Powell: “Stocks are Overvalued”

The current market presents a stark contradiction: stocks are high, but the Fed is entering an easing cycle. As billionaire David Tepper notes, he's "constructive on stocks" due to cheapening money but "miserable" because valuations are sky-high. Warren Buffett mirrors this caution, holding a record high of over $344 billion in cash. This balance reflects the core tension: stocks can easily run higher on investor optimism, yet the consensus is that forward earnings multiples are dangerously stretched. Like Buffett in 1969 and 1997, savvy long-term investors are prioritizing capital preservation, maintaining some exposure while waiting for the inevitable mean reversion to bring prices back down to a prudent level.

Tepper: “Nothing is Cheap Anymore”

Long-term investing demands a careful balance: stocks typically rally on the promise of cheaper money from expected rate cuts, but this momentum clashes with clear structural economic weakness that necessitates the cuts. History favors stocks during easing cycles. However, the key risk lies in whether economic weakness persists and hammers corporate earnings, eventually undermining high valuations. The recent "hawkish cut" by the Fed surprised markets, indicating concern for a deteriorating jobs picture over inflation. While the market continues to rally on optimism, as legendary investor David Tepper warns, valuations are high. The strategy remains to maintain equity exposure to ride the easing cycle while holding significant cash to capitalize on any likely drawdown.

Recession or Weakening? 

Despite signs of a weakening U.S. labor market, including a recent record-downward revision to job growth figures, investor bullishness remains at record highs. However, it's pure optimism that has pushed stock market valuations to expensive levels, with the S&P 500 trading at over 22 times forward earnings. While market psychology and momentum can drive prices in the short term, fundamentals will eventually prevail. Prudent investors should prioritize buying high-quality companies at attractive valuations, a strategy that currently requires patience.

When Will Bad News be Bad News?

History shows that central bank easing cycles generally benefit stock markets. However, we should ask why central banks are cutting. If the Fede cuts rates to combat a slowing economy, the news may not be as positive as it seems. A weakening economy means lower corporate earnings and reduced consumer spending, which are ultimately negative for stock prices. Several bleak monthly jobs reports is evidence that the economy is struggling. But is just a soft patch or something worse? I suggest exercising caution - rate cuts are not always a positive.

How Buffett Thinks About Selling

Selling stocks is harder than buying them. Drawing on lessons from Warren Buffett - investors should sell for four key reasons: (i) when a stock is overvalued relative to bonds, making bonds a more profitable option; (ii) when a superior investment opportunity emerges, though you should be careful not to "sell flowers to buy weeds."; (iii) when the business fundamentals change, and its competitive advantage is at risk; or (iv) When a predetermined price target is met.

Free Cash Flow: Your Best Bet for 10x Returns

A new Feb 2025 study, The Alchemy of Multi-bagger Stocks, challenges conventional investing wisdom. Analyzing 464 companies with 10x-plus returns, the research found that factors like revenue and earnings growth were irrelevant. Instead, the strongest predictor was free cash flow yield, proving that a company's ability to generate cash is more important than its reported profits. The study also highlighted the importance of small size, cheap valuations, and contrarian timing—buying stocks near their lows rather than joining the crowd. This research offers a powerful new framework for finding truly exceptional investment opportunities

‘INVESTCON 5’ – Trim Growth and Get Defensive

Howard Marks reminds us, true success lies in understanding the critical difference between price and value. Price is what you pay for an asset—a number driven by market sentiment, optimism, and fear. Value, on the other hand, is what you get—an asset's inherent worth based on its ability to generate future cash flows. While markets may act as a voting machine in the short term, pushing prices to extremes, they behave like a weighing machine over the long run, eventually reflecting true value. By focusing on value over price, investors can avoid costly mistakes.

One Big Beautiful Inflation Bill

Market speculators held their breath for the latest inflation data, betting on a "soft" reading that would pave the way for a long-awaited rate cut. With stocks at record highs, their hopes were clearly pinned on a favorable outcome. While the headline CPI number was lower than expected, the Fed's preferred measure of core inflation, which excludes food and energy, continues to creep higher. This suggests that prices for most goods and services are still on the rise. Meanwhile, a chorus of voices, including political appointees, are urging the Fed to cut rates.

Wall Street Sounds the Alarm… 

It would not surprise me to see the market give back 10–15% over the coming weeks and months. Valuations are very full and the economic data is weakening. But something to watch is the bull-steepening of the 10-yr / 3-mth yield curve from inversions. Whilst not a great timing too - generally its 'vector' is correct. That's a warning - despite the Fed cutting rates.