Our goal for Investment Perspectives is for it to be one of the ways that we communicate our thinking (past and present) to clients and the general public. We believe that investing is an iterative process and we know of no better way to test our own thinking than to share it with others. We encourage readers to send us their thoughts or questions.
Latest Investment Perspectives
“Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria.”
– Sir John Templeton
Valuation, Concentration, and the Return to Fundamentals
As the third quarter of 2025 concluded, markets continued their impressive climb from April’s lows, with the S&P 500 reaching new all-time highs despite persistent uncertainties around trade policy, labor market health, and monetary policy direction. The 34% rally since early April has pushed valuations to levels that demand careful scrutiny: the Shiller price-to-earnings ratio[1] now stands at 40x, well above its 35-year average of 27x and approaching levels last seen during the dot-com bubble. More concerning than the headline multiple is the narrow leadership driving these returns with the Magnificent Seven technology stocks contributing over 60% of the S&P 500’s gains, while the equal-weighted index lagged significantly.
Against this backdrop, this quarter’s Investment Perspectives examines three critical considerations for navigating today’s market environment: what elevated valuations and extreme concentration mean for portfolio construction and expected returns, whether the artificial intelligence investment cycle is approaching an inflection point as reality confronts expectations, and why the market’s apparent calm masks underlying fragilities that favor defensive positioning. As always, our focus remains on companies with sustainable competitive advantages, reasonable valuations relative to growth prospects, and management teams that prioritize long-term value creation over short-term narrative. In an environment where speculation occasionally overshadows fundamentals, discipline, patience, and a commitment to quality become our most reliable tools for protecting and compounding capital.
[1] The Shiller P/E (also called CAPE ratio) measures the S&P 500’s price relative to average inflation-adjusted earnings over the past 10 years, providing a longer-term valuation perspective than traditional P/E ratios.