Some are born to sweet delight; some are born to the endless night.
-William Blake
It is natural for us to assume that the way the world is during our lifetimes is the way it’s always been. Whether we are born into a period of chaotic upheaval, or (as we in the US have been fortunate to experience), eighty years of relative peace, our life experience shapes our world view and philosophy in a powerful and enduring way that is hard to dislodge. Knowledge of history is important—our own short span of experience emerges from a timeline that includes eras in which, had we lived through them, we would have seen the world very differently. History gives us a larger perspective and teaches us that the challenges we face are not completely unique to our own time and place. Predicting the future isn’t possible, but historical perspective helps us see the possibilities. A knowledge of financial history helps us understand the nature of current conditions that determine the nature and availability of opportunities. Investing largely deals with an unpredictable future, but history suggests what results we might reasonably expect both short and long term.
Looking at market and business conditions mid-2025, we are struck by the level of breathless hype found on Wall Street and in the business community. In some ways this is understandable; for over 40 years financial markets have marched onward and upward, quickly overcoming crises, even wars, along the way, as hindrances such as high interest rates receded into the past. Underlying the market strength has been robustly expanding business activity, helped along by governmental intervention in the form of monetary and fiscal actions, including outright bailouts when “animal spirits” went too far. Benign periods, characterized by a relatively stable financial, legal, and economic framework, are always a boon to enterprise and wealth creation, and this one has been no different, except in the extremes it has reached. For those who have known nothing else (probably the majority of people in the investment business at this point), this is “normal.”
The fact that we have overcome challenges and crises (Financial Crisis, the Covid pandemic) has instilled a sense of invincibility. Since government and central bankers support business, and markets always recover from setbacks, one can “buy the dips” with impunity, the thinking goes. Risks are downplayed, and activities which in the past would have been regarded as speculative crapshoots are currently viewed as suitable for individual punters or retirement accounts; advanced tech, “AI,” “Private Equity,” and crypto are all promoted heavily. Silicon Valley is pushing the concept of “abundance” in which artificial intelligence will eliminate poverty and disease and create more wealth than we will ever need. Even SPACs (“Special Purpose Acquisition Companies”) are making a comeback after cratering a few years ago, creating great excitement among those who actually make money in these deals: their promoters. In some ways it seems we have become too rich for our own good, and under these circumstances all financial assets, from stocks and bonds to real estate and private equity, have become overpriced. A great investor once said, “a good investment is not the same as a successful speculation.” In this environment, almost everything is successful and there are many, many “great investors.”
Examples of optimistic phases during which the historically uninformed think nothing can go wrong are not hard to find. The late 1920s was the penultimate period of excitement among the public over finance (stocks in particular) and expectations for future prosperity. That was an unusual period in which stocks, long considered off-limits for true investors (if you bought a stock, you were a “speculator”) acquired acceptance, as newly published research provided evidence for the benefits of equities as “long-term investments,” a radical view at the time. In addition, the industrial economy matured and became more stable, and the changes in people’s lives brought about by electrification, radio, labor-saving devices, and increasing wealth made it seem like a bright future was in store. The stage was set for the enthusiastic explosion of stock values in the latter half of the decade, when some prominent people thought that all you had to do to get rich was own “good stocks.” Like today, financial assets became vastly overpriced in some cases. Even the equivalent of today’s “SPACS” enjoyed high demand on Wall Street.
Similarly, strong equity returns from the 1950s to the early 1970s led to great public enthusiasm for stocks as robust post-war economic activity boosted strong corporate financial results and persistent market strength. Mutual funds came to prominence at this time, providing an easier route for the general public to participate, and fund managers became celebrities. The “just own good stocks” mantra was revived in the form of the “Nifty Fifty” growth stocks of the early 1970s that were viewed as an easy route to wealth.
Financial history, however, is not a story of an uninterrupted path to riches. Those who came of age in the 1930s, following the financial collapse of 1929, experienced the Depression years, which gave them a very different perspective than the prior generation; securities were viewed as dangerous, and Wall Street and the markets were not trusted. Owing to the scale and shock of the calamity, the perception that financial markets were “rigged” persisted well into the 1950s.
Likewise, the “Nifty Fifty” era was not to last. Optimism crumbled as the energy crisis of the early 1970s led to sharp declines in stocks, followed by an inflationary period in the latter half of the decade. Fearing currency debasement, investors fled to gold and other commodities, shunning the stock market (one financial publication pronounced the “death of equities” at this time). Once again, financial markets became anathema to the general public and Wall Street was out of favor until the early 1980s.
Now we have come full circle again. Finance, financial markets, and “financialization” are a significant part of public discourse and news cycles. Jobs in finance are a large draw for many college and graduate students. Glib talk of five trillion dollar companies and “abundance” indicates a period of extremes. As our brief historical survey suggests, interest in financial markets, especially the stock market, tends to wax and wane over the years, following the state of the economy, and heavily influenced by the past experiences of investors. It is also clear that periods of excess, as well as those when Wall Street is shunned, are followed by their opposites. However, we never know when these transitions will occur.
If indeed we are approaching an impending change in the financial paradigm, the implications for investment are clear. Such transitions have more often than not been quite abrupt and frequently not pleasant; market disruption, price declines, inflation, bankruptcies and the like often happen at such times. What is an investor to do? First, avoid the hype that is inevitably present at times of excessive optimism (“AI,” crypto, etc.), leaving those gambits to novices and grifters. Second, never forget the most important aim of investing—to preserve capital. This may require us to dispense with qualms about holding cash (money funds), as cash has tremendous optional value, meaning that it holds its value when other assets succumb to panic, and is available for productive use. Lastly, banish FOMO— “fear of missing out”—from your vocabulary.
* * *
In the investment business it pays to be skeptical. Promoters of investment schemes promising riches will take your money and be long gone by the time the results prove to be disappointing. Even legitimate proposals must be viewed with caution, as deals are almost always offered (to public investors at least) when market conditions and prices stand to benefit sellers. Some offerings are fabulously successful, but those are rare.
Given our natural skepticism, we have viewed the ultra-hyped artificial intelligence phenomenon with suspicion. Market capitalism has once again demonstrated its ability to corral vast resources attracted to a mere idea so complex that the inner workings and reality are easy to obfuscate. Tech firms and all manner of venture capitalists and funds have poured hundreds of billions of dollars into speculation; one AI startup recently raised funds privately at a valuation of ten billion dollars, without revealing any details of what it is developing. Most speculations fail. Given that risk, speculation should be confined to private investors who, presumably, go into such commitments with open eyes and the ability to withstand losses.
It is gratifying to know there are other skeptics of AI who are highly qualified to expound on the industry. In June, the Financial Timespublished an interview with Emily Bender, a linguistics professor whose book The AI Conoffers a sharp critique of the claims surrounding the technology, which she describes as a “glorified Magic 8 Ball” that puts together strings of text based on probabilistic factors “without any reference to meaning.” Computing power, abundant data input, and improved algorithms have made these systems more sophisticated and useful, but despite predictions of future machine superintelligence, there is “no emergent mind,” Bender maintains.
Bender’s belittling of AI claims has met with backlash from a well-funded industry seeking to commercialize the technology (one tech company fired two employees who had co-authored The AI Con). Yet ignoring AI’s shortcomings and potential dangers, not to mention other criticisms such as the vast amounts of energy and water needed for data centers, seems ill-advised. Some observers are already questioning whether the hundreds of billions of dollars being invested in data centers, data collection, and software development will ever pay off. We suspect the same can be said for stocks whose prices have been hyped-up by AI speculation.
Dennis Butler, MBA, CFA
Commentary