What a wild start to the stock market in 2025 for Investors. There is far to much noise and a lot of distractions out there.

🎲 Appears to me to be a speculators market more than anything else right now.

Trump, trade wars, skyrocketing valuations, gold hitting record highs, indices creeping upward, and crypto experiencing wild fluctuations—what is going on?

We recently experienced a significant market disruption with DeepSeek’s announcement, which negatively impacted the Magnificent Seven and any AI-related stocks due to fears about increased competition and execution costs being lower than anticipated.

This development took the steam out of the AI narrative and the excitement surrounding the Magnificent Seven. We witnessed a crash across various sectors—from crypto and data centres to uranium—for a few days following the DeepSeek news.

With Trump constantly dominating the headlines, investors and market participants are distracted by the surrounding news, creating anxiety and uncertainty about what to do next. Short-term thinking and reacting to this news, earnings seasons and short-term portfolio positioning, can lead to poor decision-making.

💭 The long-term investors, and even those who think long-term, seem to be scarce these days.

It’s challenging to invest in this market climate, as narratives are changing quickly, fuelling market volatility. Indian markets, after a significant winning streak, have declined notably from their October 2024 highs. Although the growth story remains intact, domestic investors appear to be becoming more cautious and are unwilling to pay inflated prices for growth. Valuations, especially for small and mid-cap stocks, are stretched beyond reasonable limits.

Foreign Institutional Investors (FIIs) have seen substantial outflows, but they will likely return when valuations align with acceptable investment criteria. Meanwhile, China’s market looks cheap, Japan offers opportunities, Australian small caps are promising, and even the Euronext 50 has had a stellar run this year, up 11% year-to-date. So why pay any price for inflated valuations when there are better asymmetries available in other markets where value is more tangible?

Anyway, I digress. The stock market in 2025 is shaping up to be an entertaining one, with many unknowns that can complicate capital deployment.

It is easy to get distracted!

In this type of market, it is hard not to get distracted. With the Trump Trade tariffs looming and the potential for an escalated trade war, it’s challenging to think about how to protect against the downside.

Additionally, with DeepSeek now disrupting the AI craze, it’s difficult to engage with AI investments without the risk of market disruptors undermining your investment thesis.

It’s essential to focus on the fundamentals, ignore the noise, and look for value—always. This doesn’t necessarily mean traditional value investing; I’m referring to value in the broader opportunity. Even growth opportunities carry value.

A high-growth stock with elevated valuations can be attractive if you look ahead. You need to assess whether the company can grow into its high valuation. Is there potential for revenue to compound year over year? Is the addressable market large enough? Can these earnings be realised?

I typically use a Reverse Discounted Cashflow for these exercises. If a company is spitting out Free Cash Flow, reverse engineer the price. If I think the growth implied in the price is unreasonable I just leave the company.

The company must be best in class to capture that market share and achieve those returns. However, I see too many expectations priced into the market—irrational exuberance, in most cases. There are high-quality companies whose prices I just can’t justify. Sure, momentum can carry prices upward, and shares may continue to hit new all-time highs, but for me, that isn’t a solid investment thesis.

📈 The Stock Market in 2025 is all focused on momentum…

Rotating capital based on momentum doesn’t work over the long haul, especially when considering capital gains tax, trading fees, and the risk of being wrong about an investment idea. When multiples contract, share prices can plummet. Currently, I see the market prices offering little buffer; even small hiccups, like missed earnings, or a wildcard like DeepSeek can wreak havoc on share prices.

Across the board, valuations appear stretched. I’m not suggesting a crash or decline is imminent; I don’t expect the NASDAQ to crash 80% like it has in the past, although some are talking about that possibility. Yes, the NASDAQ did tank 80% previously, but in the years leading up to that, it crept up approximately 8 times. In contrast, over the last few years, the NASDAQ has increased about 1.4 times, or 140%. This is decent but not overly speculative.

My suggestion is to avoid getting caught up in all the euphoria, market noise, announcements, and fear-driven movements.

The markets are unusual right now; bonds are up, and the risk-free rate of return is not far off the alpha the markets are expected to produce.

Valuations are high, but we have also never seen earnings, revenue, and growth at these levels. At least companies are generating and distributing significant cash flow. Ultimately, it depends on what investors are willing to pay for future revenue and earnings.

Far too many investors seem unconcerned; they are simply chasing momentum. This approach works well in bull markets as we have experienced recently. I encounter individuals in all markets who sound knowledgeable, boasting about how their portfolios have performed multiple times over the past few years.

The key to successful long-term investing is to invest in all market conditions. When the first bear market hits, we’ll see how these momentum-driven investors and growth-chasers fare.

For those with long-term perspectives, there is plenty of value available, even among growth ideas. Just don’t pay any price and avoid chasing prices. Let them run. The market constantly provides opportunistic entry points for quality ideas. So what if you miss a few points or a multibagger here and there?

Tune out the noise and stick to the fundamentals. Adhere to your investment strategy at all times.

Growth Investing has smashed Value Investing…for now.

Growth investors have clearly outperformed value investors this time around, but value will have its moment sooner or later. A balanced approach combining both strategies in the current market conditions is wise. Positioning your portfolio with some undervalued or deeply undervalued plays from overlooked areas, while also including high-quality prospects with growth potential, can help stabilise your portfolio.

Right now, I am focusing on these same areas: a mix of growth ideas, high-quality companies that are fairly priced, and some deep value plays. The U.S. market, especially the NASDAQ, is where the excitement is right now. Even the Indian investors and those in Southeast Asia I speak with all talk about U.S. tech stocks, U.S. AI stocks, U.S. pharma stocks, and everything related to the U.S. It’s a fair point; this market has performed well, so they are focused on chasing those multiples.

However, seasoned investors I speak with—those who have quietly compounded capital for decades at double-digit rates—don’t think this way. They are focused on being positioned for the next cycle and the one after that.

I believe the recent bull run has fostered overconfidence and hubris among investors who have made good money simply because “a rising tide lifts all boats,” rather than based on underlying intrinsic value. I want them to succeed, but after talking to many of them, I feel they may face a shock when the next significant downturn occurs.

👇 …and the crash always comes.

These seasoned investors are not even looking at U.S. stocks; they are reallocating their capital into Australian small caps, undervalued opportunities in Hong Kong, deeply undervalued companies in China, as well as investments in Japan, India, and sectors like energy. They focus on unloved areas and undervalued companies with strong cash flows, dividend-paying capabilities, and long growth runways, all trading at reasonable P/E ratios.

While the potential for explosive growth isn’t there to turn $100 into $500 or $1,000, these investments can quietly compound returns at high single-digit to mid-teen rates with minimal downside risk.

That’s why asymmetry in investing is crucial in this climate.

Sure, you can achieve substantial gains with crypto, gold, tech stocks, and AI in 2025, but the downside risk is significant. There are plenty of opportunities to deploy capital intelligently right now in lesser-known and undervalued sectors without exposing yourself to such high risks.

That is where I see the most promising opportunities emerging in 2025.

🔑 The Key Takeaway…

While this is not a market update and doesn’t focus on specific stocks or ideas, I feel compelled to remind investors to concentrate on fundamentals, maintain a long-term perspective, and stay true to their goals and investment strategies ➡️ Investment Philosophy.

I’ve spoken to numerous investors from around the world, and apart from the veterans, the majority of private investors seem spooked and unsure of what to do. They are distracted by the noise of market headlines, discussions about Trump, tariffs, AI developments, cryptocurrency fluctuations, gold prices, the S&P 500’s potential for its third consecutive year of double-digit gains, whether the market will crash, and whether the US dollar will sink.

None of this matters if you have a long-term view.

I, too, find myself drawn into this noise at times. Recently, I noticed some fluctuations in my Indian portfolio and my global fund and felt the pull to react. It’s easy to get caught up in the surrounding noise.

If you know what you are looking for, it’s crucial for investors to remember to block out everything else, including high-level macroeconomics at times, to focus on idea generation and building their hunting grounds.

I spoke with a group of Indian and US investors who were all asking me questions. They expressed concerns about their portfolios being down, despite making significant gains in the past few years. When I asked if they were still in the green, they all replied yes; they had not lost any money.

However, fears about previous gains being wiped out lingered. I didn’t have a response or advice, but if you maintain a long-term outlook of 10 years or more, what happens now won’t ultimately matter. The market will fluctuate. In my opinion, it’s wise to prepare for more volatility ahead. 

They sought advice, but I couldn’t provide any specific guidance. In my view, the best course of action is to remember that you can’t go broke taking a profit. If you’re concerned about market volatility and your investments are performing well, consider taking profits and reallocating those funds. The best advice I ever received from a seasoned investor was exactly that..

…you never go broke taking a profit…