Investing is not all sunshine and rainbows. “The market” regularly goes through periods of euphoria but also goes through periods of extreme fear.
I would argue that we are in a period of extreme fear.
I would like to say one thing when it comes to financial news. Most financial news is entertainment. They are going to tell people things on the news that will keep people tuned in.
Right now most financial news it going to talk about risk and selling off.
Most risk in the market is largely due to uncertainty.
When things are uncertain, people tend to act in a way that confused people act. People will have a tendency to have knee jerk reactions and sell.
There is also a lot of leverage in capital markets. When there is a lot of leverage, prices move more erratically.
Markets like these are why people say “only invest what you are willing to lose.”
People do not say “only invest what you are willing to lose” to encourage people to take risky bets.
People say, “only invest what you are willing to lose” because in these markets you won’t care as much; you are less likely to have a knee jerk reaction in response to downward volatility.
When markets are like this, it’s rough. No one has a crystal ball.
I would also argue that geopolitical conflict is not the only driver right now for the current sell off.
Energy prices going up and staying up can slow down the economy. It makes transporting goods more expensive which in turn makes products more expensive.
Also, AI has created a lot of uncertainty. We have no idea what AI will do to the market. Picking winners and losers of the AI race is very difficult. There is also a chance that the companies that win the AI race actually perform poorly in the market.
Just as an example, Google is expected to spend well over $150 billion (yes with a B) on AI CapEx in 2026 alone.
So even if Google wins the AI race, what does that look like for their investors? Google will need to make way more than they spend on AI for them to create value for investors.
There are also a lot of tech companies that cannot create AI agents that will be able to compete with companies like Google. What happens to the tech companies that cannot compete with Google? No one knows. This is uncertain.
So long story short, markets do not like uncertainty and we have a lot of uncertainty right now.
Key Drivers of Uncertainty IMO:
• Geo Political conflict
• The price of energy (Oil, Natural gas, etc)
• Will AI investments create value for shareholders at companies like Google?
• Will AI change which companies are successful over the longterm?
Ultimately, the current market we find ourselves in is a reminder on some important “rules” when investing.
Rule #1 - Only invest what you are willing to lose
Rule #2 - Leverage is not your friend
Stay safe and please try to avoid knee jerk reactions.
Cheers,
Hurt