Transcription
The man who needs no introduction. Believe it or not, he's been doing this for four decades already, 35 years in the industry. Former chief equity strategist for JP Morgan. For the past 11 years, he's been the co-founder and the head of research of Funstrat. The past six years, he's been doing a lot of work for retail investors like myself and you guys at FS Insight. Uh, last year he launched Granny Shots, the ETF, and as of June this year, he's the chairman of BMNR. So he's diving into crypto and Ethereum, the man of many talents. Hello, Tom. Good to have you on.
Yeah. Uh, great to be on with you, Tom.
So Tom, I got to ask you a question here. Uh, looking back, we're up about, you know, 80-something percent over the past three years. Uh, what did the bears get wrong for the past years as of 2023, '24? You've been one of the only voices saying, "Hey, this is going to happen." What did 90% of analysts miss over the past three years?
Um, yeah, you know, um, Scott Bessant famously has said in the past that, you know, 80% of a trade is macro, you know. And so I think for the last three years, um, most investors took that to heart and became armchair macro people. But what threw people off over the last three years was a few things. Number one, uh, they were too grounded in like believing there's a science to the yield curve. You know, like the yield curve was inverted. Now, we explained at Fundstrat that the inversion was due to inflation expectations. Inflation was higher near-term, so the nominal rate should be higher near-term, but it would drop long-term. That's why the yield curve inverted, but everyone said it was a recession signal. Uh, number two, I, I think what people got wrong is that they, we never had experienced inflation before. So everybody was anchored in the 1970s as like the template, not realizing that we didn't have the same interactable conditions to cause inflation. So I think people were structurally bearish because they're like, "Curves inverted, there's a recession. Second, we have stagflation." And then they missed that companies were real-time dynamically changing their business models to deal with inflation and a tight Fed. And they delivered good earnings. So I think Fundstrat and our, our focus for our clients was, "Look, let's just find the best companies. They're not really going to be beaten up because of inflation." And, and that thesis proved correct.
I mean, you know what they say, time is the best friend of a great business in the stock market at least, and the worst enemy of a of a crappy one. And that's true in inflation or in a bull market, doesn't matter. But I've heard you speak for the past few weeks, and it seems to me that we're repeating some of the similarities that what happened in 2022 when everybody's starting to get bearish right now about this market. They're starting to get anxious. And, um, you are taking a position again that you think that we are still in the bullish setup. And I know, I know you work. I've been following your work. So I know you've been bearish before. People just haven't seen it for the past five years. So you can be bearish. That's the one thing I've, you know, I've been doing this for 30-odd years. Um, what do you think people misunderstand the most about the current setup?
Um, well, I think what, what people have a hard time understanding and grasping are super cycles. Uh, because, um, you know, Funstrat's work by nature is thematic. We look for story arcs that last 10 to 15 years. So the reason we turned structurally bullish in 2010, well, 2009, was because, um, our cycle work showed that there was a long-term bull market starting. And beginning in 2018, we identified two future super cycles. One was millennials and the fact that they're entering the prime age workforce. That was a powerful tailwind that would last up to 20 years. And the second was there was a global prime age workforce labor shortage. I know it sounds like plain vanilla to say that, but that was going to set the stage for an AI boom. So, we're in the midst of an AI boom that is causing prices to levitate. But this is pretty textbook. In 1991 to '99, there was a labor shortage and tech boomed. 1948 to '67, there was a labor shortage and tech boomed. So, tech is booming. And a lot of people look at stocks that have a high Sharpe ratio, right? They're just going up and they assume it's a bubble. And so people have been chronically trying to short Nvidia every step of the way up. And then the second thing people anchor to is that, well, many people aren't really that old in our business. Um, I, I was actually an equity research analyst during the dot-com boom. So, so many people are saying this is just like the dot-com mania. Um, there's some similarities, but we're so far from it. But everyone thinks that this is B again. And the mistake of making, they have to understand...
In the in the late '90s, right, which was the heart of the?
Yes. Yeah. And I, I was actually helping, uh, doing the wireless sector. So they were part of that buildout of the fiber and the cellular towers and the internet. I remembered that data networking analysts asked me, "Tom, what is TCP/IP?" Because, you know, wireless companies had to do some basic architecture. So, this is very different because AI, of course, is gaining function. Internet wasn't gaining function. There was just a lot of spending.
Like, I, I find it amusing when people draw the comparison between Cisco and Nvidia because, like, if you look at it, telecom and, um, GPUs, it's such a completely different lifecycle, right? With telecom capex deployment, you know, it's once in every couple, you know, decades. And then in, in GPUs, I mean, you're living through a new cycle every couple of months. It's insane.
Yes, that's right. So the thesis in telecoms back then, because people forget, because telecom was the capex boom, not internet, uh, in the emerging markets, telecom spending was associated with GDP growth. So there was an emerging markets thesis around telecom spending. Uh, that was in the mid-'90s, but then that spilled over into the US, digging up a lot of fiber everywhere, on the railroads, on the streets. Many people were young, but they were, you know, Quest and everybody was laying fiber. And then they were laying fiber across the world with Global Crossing. The problem is internet consumption of that was not at all keeping pace with the explosion of of the amount of fiber being laid. There was almost 99% dark fiber at the peak. Now, Nvidia GPU usage, as you're saying, is pretty much 100% usage the minute they turn it on. It's a lot like more like the Cheesecake Factory, where when Cheesecake Factory opens a store, it's at 98% capacity.
If Nvidia could increase capacity by another 50%, they would still sell out of every single chip.
That's right. Because, uh, as you know, today there are three really binding constraints. It's Nvidia chips. It's actually silicon, uh, surrounding it. And it's energy. And all three are constrained. And then it's really, not maybe not the best word, but the gain of function of AI is actually progressing faster. So, uh, there really right now is capital spending is behind the curve.
Tom, I got to ask you a question. Uh, you said on multiple occasions that we might see 7,000, 7,500 on the S&P 500 by the end of the year. I, I mean, I take all of these with a grain of salt, as you yourself explained that, you know, everything is fluid. But generally speaking, you're bearish heading into the final couple of months of the year. What do you think the sector that's going to surprise people for the next couple months that they're not seeing it coming?
Yeah. Uh, Tom, I might have misheard you. Were you saying that I'm not bearish into the final four, few months?
I, I heard you talk about a bullish cycle going into the final few weeks of the year.
And I heard you, I think, two weeks ago talking about 7,500 on the S&P 500 as a possibility.
But again, I said, like, maybe 7,500, maybe 7,000, doesn't matter. But overall, you're bullish heading into the final few weeks. So my question is, what sector do you think is going to surprise people for, for the better versus the current expectations?
Well, um, yeah, it's, uh, well, number one, as you, as your viewers know, people have gotten pretty bearish in the last couple of weeks because the government shutdown kind of has deprived the economy of money, and then the Treasury Department isn't dispersing funds. So the liquidity has shrunk, and it's caused stocks to actually wobble. And every time the S&P is down two or 3%, or AI stocks are down five, uh, I think people get really cautious. I think, first of all, bear, uh, bullish sentiment is not even anchored properly. People become so hesitant. I think everybody thinks there's a top. Here's the thing: when everyone says there's a top, there cannot be a top. Uh, the top in the in the dot-com was because nobody thought stocks could ever fall. They actually thought we were entering like an, an era of a, you know, continued prosperity. The second thing to keep in mind is that markets have been strong for the last six months. There is incredible, uh, demand for equities because people have, are really off sides. That's, that's what you have to keep in mind. In April of this year, people thought we were facing Armageddon because of tariffs, and you had many economists proclaiming a recession. And that's how institutions traded. They were actually positioned for a massive bear. It. They can't fix that in six months. So, we're now getting into year-end where institutions, 80% are trailing their benchmark this year. It's the worst performance for institutional fund managers in 30 years, and they have 10 weeks to fix it. They're going to be buying stocks. And finally, um, visibility for AI has not even been affected by the government shutdown or anything. So, companies are going to start, as they think about 2026, start making announcements. So, I think in the final months, like, I think one surprise is the AI trade's going to come back strong because it's wobbled. But, but the Fed is getting people scared because, is the Fed going to suddenly hammer down on things? But keep in mind, inflation has been softening. So if they cut in December, they're confirming they're on an easing cycle. Now, that's not, that meeting is not for a few weeks.
But that would be really bullish for financials and small caps. And by, by the way,
what's correlated to tech and financials and small caps? It's crypto. So I think you're going to have a massive crypto rally as well.
How far do you think we we get on, uh, on Bitcoin by the end of the year?
Well, I think people have dampened their expectations for Bitcoin, uh, because partly because Bitcoin's been treading water, and there have been a lot of OGs, uh, original Bitcoiners that are selling above $100,000. But it is still an underallocated asset class. So, I think Bitcoin actually potentially can get to the high $100,000s, you know, maybe even $200,000 by the end of the year. I think it's a big ask. But to me, um, what's more obvious is Ethereum, uh, can have a huge move into year-end because even Kathy Wood wrote about it. She thinks stablecoins have been cannibalizing demand for Bitcoin and and gold, and tokenized gold is cannibalizing demand for Bitcoin. But stablecoins and tokenized gold run on smart contract blockchains like Ethereum. And Wall Street is building, and Larry Fink wants to tokenize everything on Wall, on on the blockchain. That means Ethereum is where people are starting to raise their growth expectations. And if you're raising your growth expectations, then your discount to the future's going up. So I, I think that there's a bigger move in Ethereum. Mark Newton, our head of technical strategy, thinks we can be like 9 to 12,000 by January. I, I think that's about right. I think Ethereum just 3,600 more than doubles between now and year-end, or between now and January.
And, uh, the thing you pointed out earlier, and that's the, that's the part I, I wanted to ask you. I've been fascinated by this question. So obviously, just to recap what you're saying, you look at the fear and greed index, we closed Friday on 21. We're at extreme fear. You look at the Fed CME Watch Tool, it says, "Yeah, 70% chances of another cut in December." And everything is rallying. And you're saying, well, doesn't add up, right? So, you mentioned this, and I, I keep explaining this to my viewers. Um, if you're managing money for very wealthy individuals, right, you're getting paid 2% AUM and 20% carried, you are expected at the very least to not lag the S&P 500, right? So, as you pointed out, there's a huge game of chicken going out now for the past three years, '23, '24, and, and so far this year with professional money managers essentially trying to will their way on the market. And they're essentially doubling down on this bearish position, saying, "Oh, it's coming, it's coming." So, I think at some point, as you as you point out, you have to make the call to say, "Well, we got it wrong. We have to jump in." And as you pointed out, I think, yeah, towards the end of the year is where it's like the championship rounds in boxing. This is rounds 10, 11, 12, it's going to happen then. I, I agree with you. So my question to you is, um, do you think that that also spills over to cryptocurrencies as far as Ethereum and Bitcoin, that institutional participation?
Yeah, I do, Tom. Uh, one thing you're pointing out, and that's correct, is that 2025 is the third year where the S&P will be up double digits, probably up 20% this year. So, three years of 20% gains in a row. Okay. Remember at the end of 2022, people were saying we were Armageddon. Nobody was bullish. So in the last three years, wealthy individuals and hedge funds recommended people go to cash or they do alternatives like private equity, private credit, or venture. But the S&P 500 has trounced all of those categories of assets. So this is a comeuppance because, you know, three-year return, what is someone's excuse for basically having flat performance or up 15% when the S&P is almost, you know, up 200%? So, uh, this, this is really a, a, the reason 2026 is probably not as bearish as people think because now next year, I think people are going to be like, "Wow, wait, Nvidia and all these are public companies, uh, and their earnings are growing 50%. I think people are going to actually start chasing them next year." That's really positive for crypto because, as you know, there is also this argument today that the crypto cycle is a four-year cycle, so it should be ending now. So people are trying to fade that.
I think people are trying to fade everything, the S&P and the crypto, but forgetting that the Fed is beginning to cut.
And the ISM. And we've written about this, is more correlated to Bitcoin than monetary policy. And until the ISM gets to 60, Bitcoin really can't peak. So, I, I think this is pretty positive for crypto. But crypto, you know, it's kind of been hurt because, you know, monetary liquidity hasn't been really increasing. The Fed has been under QT, quantitative tightening. That's ending in December, and the Fed hasn't really given clear signals that they want to ease. So I think there's been a little bit of confusion for investors.
Speaking...
Should be ending there.
Speaking about confusion for investors, what do you think is the most overblown, overrated risk right now in the stock market that everybody is harping on?
Uh, I mean, I would say if, if I had to say what is the most overrated risk, I think the most overrated risk is that inflation's coming back.
Um, and I mean, I know how I thought you were going to say that. I was, I, I had a bet on that.
Okay. Well, maybe that was a Polymarket bet. Um, but the reason I think it's overrated is I think too many people think, um, monetary easing cycles create inflation, or they think GDP growth creates inflation. But inflation is a very mysterious thing because we had a lot of easy money for years, and there was no inflation. And now that the labor market's softening, and the tariffs basically were supposed to create another wave of inflation, it hasn't. And housing is now tanking. How do we get inflation if the, the big drivers are housing? The big drivers of inflation are housing, labor costs, and then goods. But none of those are inflating. I heard a, a Fed speaker last week say core services is inflating again. We checked it. It's, that's dead wrong. PCE core services is now running at 3.2%. It's been long-term 3.6%. It's actually running below average, and core services generally runs above 2% because goods offset that. So I think there's a false belief inflation is actually strengthening.
Do you see a, I'm, I want to be devil's advocate here for a second. What about a curveball that comes from oil? Let's say geopolitics, wars, supply chain, oil shoots up. Could you see a scenario where this makes you bearish if that happens?
Uh, I mean, there is a possibility. Um, oil, if it goes high enough, can create a shock. Um, and so, um, if you look at the, the last three, um, cycles of shocks, inflation shocks, uh, sorry, the last three non-Fed related, um, economic shocks were commodity shocks. But oil has, as a burden, has to become meaningful to households. So, you know, in the last few years, the, the energy intensity of the economy has actually shrunk. So, uh, oil needs to get close to $200 to create that shock. You know, $100 oil, we got close to that.
Yeah.
It doesn't create the shock. Um, you really need to be getting. So, could oil triple on a geopolitical? Maybe. But remember this summer, the US bombed Iran's nuclear facilities, and people had said that if the US ever bombed Iran's nuclear facilities, oil, uh, would spike to $200, and it barely budged. It's again, I'm young, so I haven't been around for the past 100 years, but one thing I can say, just destroy my own kind of devil's advocate argument, is like geopolitics have never long-term slowed down the US economy or the US stock market. We had like local shocks, but I mean, we've never had geopolitics cause an actual recession or or a big stock market crash in the United States ever.
Yes. That's right. Geopolitics can crash, um, unstable economies. I mean, it makes sense. Like, you know, if you, if you looked at, like, Asia, anytime there's been like an, a revolution, like the stock market crashes.
Um, and I think a lot of people think the United States is a banana republic, but as you know, uh, the real key is, are companies' earnings going to crash because of geopolitical tensions? And if they don't, then I, I think we should stop, like you said, overlaying that as a, as a principal reason we could have a bare market.
Yeah. You know, the famous chart, uh, Josh Brown put it up, the one that he, he superimposed all the crazy things that happened in the world on top of the S&P 500, and then he, I think it's a, it's a beautiful chart. I love his work. Uh, shout out to him. So, I want to ask, I want to ask a question based on what you just said. So, we were talking about, you know, the Fed, there's a good chance the Fed cuts. The market is pricing that in, as, you know, Fed CME has it at 70%. What happens if Powell throws a curveball and doesn't cut in December? Does the market, uh, react negatively to that?
Uh, yeah, in the short term, Tom, that would. But as you know, um, Fed Chair Powell, now, he's done a good job as Fed chair, but as you know, he's not popular with the administration. So there's a good chance that he is a lame-duck Fed chair, and there's going to be a replacement named. I think if he doesn't cut in December, the White House is going to accelerate plans to re, re-replace the Fed chair. So a Fed, a shadow, the odds of a sha, quote, shadow Fed go to 100%. And that new shadow Fed will be establishing monetary policy. So I think there isn't going to be as necessarily negative repercussions because I think this, the, the idea of a new Fed would be one that doesn't have to be ruled by all the voices of the Fed either. There may be a, a shift in the way monetary policy is conducted.
I think people in general put too much into what Powell says, how he says it. I think there's over, over analysis of of his televised speeches. I, I think it's an obsession that needs to go away. But that's just my personal opinion. I want to ask you a question, Tom.
That's pretty wise advice, Tom.
Yeah, it's overanalyzed. Come on. But I do want to ask you a serious question. I've been getting a lot of calls from family members, from close friends, uh, saying, "Look, I'm sitting in cash. I've been sitting in cash since 2022. Uh, should I, should I give up and jump in right now?" But everybody keeps telling me the market is too high. What should I do? What's the Tomy answer to that conundrum?
Yeah. Well, I, it might, and that's a, it's actually a great point because I think a lot of people have this dilemma. And by the way, when I was at JP Morgan and I left in 2014, the bo, the bull market bottomed in 2009, and even in 2014, six years later, or two, five years later, there were many people at JP Morgan that were still sitting in cash, and they were becoming desperate because they didn't know when to start getting into the market again. So, it's highlighting two things, and I'm glad you brought it up. Number one, when you sell out of stocks, you've made one decision. Now you're forced to make another decision. Are you smart enough to re-enter at a better price? That's the reason you should never panic sell because unless you're positive you'll make a tactical re-entry, you've now sat out a compounding. And as Josh Brown's chart shows, every crisis was always an opportunity, not a time to sell.
Um, but the second is, if you're in that position, you, you have to accept you've made a big mistake. And the minute you accept that, then the way you fix it is dollar cost average. So you now have to now re-establish your position. But I wouldn't do 100%. And I would not be tempted to say, "I'll wait for a correction." Do you know how many people are waiting for a correction? So I would not put 100% back into stocks, but dollar cost average means take 12 months and then do 1/18th or 1/12th or 10% every month, and then you're back into the market. And that way, if there is a dip, you can actually take advantage of that.
Uh, it's funny you should mention this. I know you don't watch my videos. I mean, not not all of them, but I'm kind of known as...
Thank you. I appreciate it. But DCA is kind of my thing. So when you say that, I, I feel like, you know, I can say great minds think alike, but, uh, I'm not, that's as far as going to go with that. But do, do you think that, um, this market is weird for me to even ask that because when I grew up, like retail never drove anything. We always were like, you know, kind of the, the, the dumb money. Is it possible that this bull run is mainly driven by retail right now, and institutional investors are still on the sidelines?
Well, um, you know, I, I'd like to correct something that people have said because I've been in markets, as you know, for 35 years.
Yep.
And I've never thought retail was wrong. Um, I, I grew up at Smith Barney, which was what they call a quote, a warehouse system. So there was a lot of retail investors, you know, that was their order flow was probably 50/50 institutional retail.
Uh, I've, in the '90s, retail was always right. Um, so the reason is, I think retail, remember, not, I mean, I'm generalizing because there's a lot in retail. There's like day traders, and there's Robinhood, and then there's Schwab, and then there's high net worth. But the reality is the person who's buying stocks because they have a long-term view of stocks is going to get this market right. Fact,
there are more of those people in retail than in institutions because the institutional investor has a monthly bogey they got to beat, and they're under pressure to beat their peers. So sometimes they forget that Nvidia is just a long-term buy. They're trying to time the market. So I would say anyone who operates with a long-term view is is the smart money. And that's been mostly more of those folks are in retail.
You know, when I was advocating for Palantir, uh, so I start, I started talking about Palantir right after the DPO launched. And it's funny, I went through every possible emotion ever. DPO comes out, we, we start talking about it. I say, "Hey, this is a, this is a trillion-dollar company." It goes up from $10 to $40 per share, and being hailed as the greatest genius in the history of the stock market. It then drops to $6. I'm getting death threats. And for, for that whole year, I've been saying, "Hey, be patient. It's all good." You know, you're getting a discount. Just look at the long term of the, of the business. The fundamentals, the price is not that important. And now we're back. I'm back to being genius. And when it corrects another 50%, I'm going to be back to being hated again. But the fact of the matter is, anybody who looked at a company, whether it be Palantir or Nvidia or Tesla, on the long-term view, and they've analyzed the business and ignored the price action in the short term, have all made money as long as they were patient enough. And I, I think that never changed in the past 100 years. I mean, we've been doing the same thing for the past 100 years. You want to buy good businesses. The only thing is, I think, and tell me if you agree with me, I think a lot of retail investors misunderstand this point where the hunt for the perfect entry point. This is my biggest problem when I talk to people. It's like, I explain, "Hey, if you're trying to, you know, if you're a long-term investor, let's say a DCA guy, you want to be in the market for the next 15 years. I mean, you shouldn't be looking for entry points. You know, you just want to dollar cost average and do a good business." But, um, what about like, what's your position on arguments like, for example, a company like Palantir? You don't talk about specific stocks. I'm not going to ask, but, you know, a lot of companies right now with triple-digit P ratios, and people are saying, "Well, that's too expensive. That's ridiculous. You shouldn't be even thinking about investing in a company with a, you know, 200, 300 P." So, is there a scenario where you think a three-digit P ratio still makes sense as a long-term investor?
Uh, yeah. Okay. Um, I'm going to, I got to draw two circles. Okay. Circle one is all companies that trade at a 100 P E or that don't make money. Okay.
Yep.
And, you know, that's like 40% of the SM, uh, 40% of the stock market. Like, not in the S&P, but just like of the 4,000 stocks out there. Of course, those the majority are bad investments because, you know, if a company can't make money, it's probably not worth your capital to risk. But then I want to draw a second circle, unique what they call N=1 businesses. Okay. What are N=1? Companies that number one are like laying the the groundwork for a huge secular story. Uh, therefore, they're not making money now. Or founders that are creating constantly new markets so that the current earning stream doesn't reflect the future. Okay. Tesla and Palantir are examples.
Look at data centers. I did wireless. Wireless was exactly that second category. They didn't make money because they were building cellular systems, but once they did, they became like huge companies.
Yep.
They should trade at huge multiples because you're trying to discount the future. Imagine if someone said, "I'll only pay 10 times Tesla earnings because it's just a car company." They, they missed it for for the last almost seven years, eight years. So, uh, that category, you have to start with a different mindset, which is find unique founder businesses and then determine if the multiple is reflecting the discount to the future. So, those, and those cases, I think you can, you can pay 100 times. But the other circle, all companies that don't make money and trade 100 times, 99% of course are not great businesses. So I don't...
That's the difference between '99 and 2025, right? '99, the vast majority was the second circle where, uh, very expensive businesses that didn't generate cash flow.
And now in 2025, most of these hype companies, they're still generating a lot of billions of dollars in cash flow.
Yeah. So I think that like the companies you want to own are like the circle where it intersects, you know, the N=1 founders, and then they might have high multiples, but that they're, they're actually good investments. Like Palantir is a great investment. Nvidia is still actually really cheap. You know...
People don't remember, but you had Palantir in Granny Shots multiple years ago. I remember. I'm, I'm a paid Funstrat, sorry, FS Insight member. Uh, I, by the way, they gave me one for free now. Your team...
I've been a paid, I've been a paid member for years. I remember seeing on the Granny Shots, seeing Palantir years ago. But I do want to ask you this question, Tom. Um, I don't want to put you on the spot here, but look, people saying, look, Nvidia, Palantir, GPUs, it's all very concentrated. For, and that's a huge sign of a bubble because this rally is too concentrated. Do you agree with that sentiment?
Well, uh, AI is a scale business, meaning you got to have a lot of money. Like, you and I can't make a competitor to OpenAI, you know, like us in our garage. Like, we'll make something that looks cool, but it's never going to compete with OpenAI. So, it's a scale business. A scale industry is something like energy or banking. There are only eight oil companies in the world. Literally, all the capex for for all the refiners. Like, there's only eight people that buy oil in the world. What if someone said oil is a circular business because there's only eight companies buying oil? Like, we'd say that's ludicrous because you got to be big to be drilling for oil and like, you know, you got to be a major. Guess what? That's a, that's AI. It's a scale business. That's what this is showing. And, you know, do we want Nvidia to be dealing with like hundreds of thousands of tiny little companies? I'd rather they be dealing with some big companies that can deliver stuff, and then there's ramifications, and then to ensure the financial viability. So I think it makes sense that there's this taking place. I, I think it's really logical.
Yeah, I tend to agree. And Tom, flipping, we talked about how most experts, by the way, I got to be honest, myself included, I thought 2023 was going to be a subpar year. And on record saying that, I would got it wrong. But I'm in good company because everybody, for the most part, got it wrong except a few. So you, you called it, and you keep calling it correctly. What did the past two years in the market, even though you've been doing this for four decades, what did the past two years in the market, uh, um, what's the most important lessons, I guess, for the past two years for you personally?
Well, the last two years include, and this year, have showed the mass delusions can persist for a long time. And I'm sorry, that's not the right word. Mass misconceptions. Because as we started this conversation, the reason people were bearish for the last few years is they thought that we were having a recession. They couldn't explain it because they didn't see it in the companies, but they were so sure because of the yield curve. And by the way, that made companies cautious, right? Um, so companies forced themselves to change. And then people were convinced inflation was going to explode and just never go away. That is a, a massive, like, disconnect from the actual underlying data because if, if there was massive inflation, companies couldn't even make money, and they were doing fine. Remember, people said banks would go bankrupt because of the curve was inverted. Banks made a lot of money. So there is, uh, I think still this reflection that human behavior doesn't change. You know, I mean, people believe something and they get anchored to it, and then most of the time, when the data disagrees with them, people choose to believe themselves than to actually believe the data. I think the reason Fundstrat actually stayed bullish was that we weren't, we weren't anchored to our view. We were anchored to the earnings, and the earnings came through, you know. And people call us permabull, but earnings have been on a perma-perma rise. I don't know what to say, you know what I mean? Like, if someone, I, I'd say that we've been following a different set of data that really ultimately drives stock prices.
Would you, would you agree to me recapping this as a ego? I think...
They get into a position and then like they fight for it.
Yeah. I think there's something that I think is important, and, uh, we speak about a lot, which is there's a difference between being having conviction and being stubborn. And being stubborn is like what you're saying, people believe that they're smarter than the stock market, whereas conviction is anchoring on the correct thing. Uh, by the way, remember in a room of geniuses, the best you can be is average. So, no, you know, like if someone thinks they're smarter than the stock market, they have to realize it is more than a genius. So, I, you know, we don't try to outsmart the market. That's Fundstrat. Let's the market tell us how to be positioned. I know it sounds backwards, you know.
It's, it's funny. People don't, don't learn history. But, uh, couple decades ago, Peter Lynch famously said that more money was lost waiting for corrections than money lost in corrections themselves. And he's kind of the gold standard, right, with his, I mean, I don't think anybody outperformed Melan over the course of his years, I mean, what, like 30% a year, something crazy like this.
Yeah, that's a gold standard. And today, there's, there's folks like that, David Tepper, and, you know, Stan Druckenmiller. I mean, those guys have, of course, you know, enviable track records. And by the way, I mean, they're all examples of like, they will counter-trade the market. Um, you know, earlier this year, Nvidia was like 90, you know, and people didn't want to touch it at eight, you know, at those levels.
And, and then as soon as Nvidia is down 10%, people don't want to touch it. I think people really have to realize their emotions are forcing them to be stubborn rather than having conviction.
One of the things I wanted to to teach, uh, people who come in and try to, uh, work with me, is like this idea, think about the stock market just like you think about any other place where you, you're procuring other services or goods, right? If you come into, to the app store, and they're selling the iPhones at a 30% discount, that's usually a source of excitement. But somehow in the stock market, it's this reverse psychology where now all of a sudden, well, the iPhone doesn't look as good anymore because it's discounted, and you're not even looking at the underlying fundamentals. I think, where do you think this stems from, this inability of people to, um, to look at stocks and the stock market in general, uh, fundamentally, and instead of doing it more emotionally?
Yeah, it's a good behavioral question. Um, I think it reminds me of, and we, we cite this a lot at Funstrat. Um, the Japanese word for crisis is kiki. And so crisis actually has two words. It's two, kiki is two words: danger and opportunity. So most people in a crisis only focus on the danger. So, like when markets are down, people are only thinking of the danger to their portfolio, or that they think, "Oh my gosh, I'm, I'm, I must be missing something because I'm so convinced something's a great idea, it should only go up every day." But the reality is they should view that as an opportunity because the markets will give you opportunity. So, you know, in, in Fundstrat's world, we always have to balance that. We know there's danger, but we see opportunity. That's, that, this year was a really good example of that February to April period during the tariff crisis. Many people went too far on the other side and said, "We're going to have a recession, or everything's over, or Trump is going to ruin the economy." But they didn't see the opportunity, and, and they only saw the danger.
And you pointed this out. I remember in April, you said, "Hey, look at the sentiment surveys and break it down by political affiliation, and you'll see it's politically motivated, not actual sentiment." I remember that from April.
Yeah, it, it, that didn't, people took a lot of offense, Tom, when we did that because we showed that the country is 50/50 Republican, Democrat. It's really evenly divided. But this consumer sentiment surveys actually now become really extremely Democratic leaning. 66% of you miss respondents are Democrats. But they're the Democratic respondents had the worst reaction to everything. And the stock market can't discern that difference. I think that...
We have to remember companies. It's better to think of the market as companies, not your political view.
Yeah. And it's a, we're not going to talk politics here. Definitely not. But, uh, you've been utilizing politics a lot at Funstrat over the over the past year and working the market based on, uh, on how politics play out. And, uh, it's, it's funny how some people refuse to do that because of, like, the, the inability to disengage political affiliation opinion versus making money in the stock market. It's, it's weird, right?
Yeah. Uh, and again,
it's like betting against a team that you're a fan of. You know what I mean? It's so hard to do. When you're a fan of a team, it's like it's hard to bet against it.
Yeah. And I think you said it earlier, there is a lot of ego in investing because like there's a lot of thrill when you like a company and you like the stock, and then it goes up because it's confirming. And then if you like an idea, but the stock goes down, then you start to question, you know, you take it, like one might take it personally, like, "Oh, am I, what am I missing? Or the market's crazy." And so there's a lot of emotions that get involved. And, uh, and I see that at work. Everybody, everyone suffers from that. And machines, by the way, aren't going to fix that because machines have a similar bias, by the way. There's, um, because...
They're, they're built in our image. So they're going to make the same bias we do.
Yeah. And everyone has a recency bias. You know, machines still have recency bias because they're going to overweight the last five years, 10 years, or they're going to wait shorter cycles where there's still so much more noise. So, um, I think that's why you have to step back and then think of super cycles and long-term. Like, if Palantir is down, does that change Alex Karp's mission? You know, if Nvidia is down, does that change that AI is like, you know, a super cycle? It doesn't. So then you just have to look past that. And it's true in crypto too,
especially in crypto because there the sentiment there drives, uh, drives everything. Um, so I, I want to let you go at at nine because I know you have something. Uh, so we have a few more minutes.
And I want to end with this question, Tom, if you may. Um, if you had to describe, based on what we know today, obviously there's the unknown unknowns, right? Based on what we know today, if you had to describe the stock market for the next 12 months in one sentence, what would it be?
Well, I'm going to say, just buckle your seat belt, okay? Because in the last five years, the market has gone up a lot, okay? Or the six years since 2019, but we've had four bare markets. So, we have a bare market every year. That's going to test your resolve. So, I think people need to just buckle up because I don't think next year's any different.
2025.
Yeah.
Sorry, Tom. Go ahead. Go ahead. I was say, because 2025, remember we were down 20% at one point, and, uh, and then we've come back, and we're up, we're going to probably be up 20% for the year. So, just keep in mind, um, it could happen again, or very likely.
In April, as a, you know, I'm a very heavy into Palantir. In April, we were down 50%. This April, on Palantir.
When the tariff scare, remember the tariff scare where everything was over, the world was ending. So, I couldn't agree more. And you just gave me a wonderful YouTube title for the next video: "Tom Lee: Buckle Up."
In all caps.
This is perfect. You should do YouTube.
Tom, I want to thank you for coming on today. I want to be respectful of your time. I, I know you said you have a little bit more few minutes, but, you know, I want to do this again if, if you may, in a few months, possibly to have you come back and talk about what's going on. I absolutely love your work and, uh, um, I hope that, uh, we can do this again. But I just want to kind of the final question to you. Um, if you had to give, uh, um, kind of this, uh, uh, one piece of advice, not financial advice, this is a different question. One piece of advice for people who started investing after 2023. There's a lot of new investors in the market that haven't seen a serious pullback. So, anybody who started 2023, '24, or this year, what's your kind of one word of advice for these folks that have not seen a real market yet?
Yeah. Well, uh, yeah. So, first, Tom, uh, you do good work, so I'd be glad to do your show again, but I don't know when. It's just, I'm, you know, very overscheduled. Um, but I would like to do it again. Um,
Thank you so much, sir.
The advice I would give is the, it's great. Markets feel great when they're rising, but there are going to be very long periods of time where it's misery, and you're going to question yourself. But that's when you need to have resolve and conviction, because more money is made when you can invest at the lows than trying to only trade this at the highs.
Couldn't end it any better. Tom, thank you so much for coming on today. I think you dropped a lot of wisdom on us and our community. We appreciate having you on, and as you said, you're welcome anytime. And, uh, this probably becomes a YouTube video, which I'll split up into like five different videos [Laughter] based on the amount of headers. But thank you so much, and, uh, yeah, have a great rest of the, rest of the week.
Thanks. You too, Tom.
Bye, Tom.
Yeah. Bye. [Music]