Juggling Dynamite

A world focused on selling us investment products and ideas spends little time defining sell or aversion rules. If someone tells you what they own or would buy, ask them when they would sell it. Most haven’t thought that far; they ride price cycles up and down with no plan to protect capital from drawdowns.

Veteran portfolio manager Seth Klarman offers numerous valuable insights in this segment.

Seth Klarman, CEO and portfolio manager of The Baupost Group, is known for his unwavering focus on value. In this conversation with Goldman Sachs President and COO John Waldron, Klarman discusses how his philosophy fits into the current market environment and how his approach to leading Baupost has evolved in his long career as a fund manager. Here is a direct video link.

On a recent visit to our son working in Silicon Valley, he pointed out rows of parked cars on the roadside where people swept up by different speculative waves were now living in their cars because they had taken on a lot of risk and had not managed their finances well.

Valuable money managers don’t blow their clients up, and their long-term worth is not only in what they do, but also in the classic mistakes that they help people to avoid.

The 2023–2024 rate hikes and bear market wipeouts tamped down rampant retail speculation. But in 2025, rate cut expectations, along with AI-inspired price rebounds year to date, have reignited animal spirits.

ChatGPT astutely observes that “Day trading’s resurgence may also reflect disillusionment with traditional investing timelines and frustration with affordability/inflation.”  In other words, the masses are struggling, and those with little to lose are often attracted to gambling. See, New Class of Meme Stocks:

Individual investors are once again loading up on a group of unloved stocks and taking to social media to defend them from the haters and the short sellers.

Meet the cast of the meme-stock craze, season two.

“Let’s goo!!” a user named Hot-Ticket9440 wrote on a subreddit forum Tuesday as shares of Kohl’s, the department-store chain, surged by nearly 40%. “Max pain on the shorts buy every dip. Together we strong.”

“$OPEN has GameStop vibes written all over it,” Skip Tradeless wrote Tuesday on X of Opendoor Technologies , the real-estate platform. “WE WON’T STOP UNTIL $82!”

Shares of Kohl’s and Opendoor have rocketed higher recently. So have other oddball stocks, including QuantumScape , a maker of batteries for electric vehicles, and Rigetti Computing , a quantum-computing firm.

Their recent rise—and the cult followings they have inspired on social media—are reminiscent of GameStop, AMC Entertainment and the original meme stocks that caught fire in the aftermath of the pandemic, when interest rates were near zero and the market’s rally was underway. Younger individual investors congregated on online stock-picking forums to share their triumphs and losses, and found a common enemy in the professional investors who were betting against their favorite stocks.

Now, with stocks at record [highs], the economy staying resilient and corporate earnings beating expectations, the environment is ripe for investors to speculate once again, some analysts say.

“You see all these indications where this is full-blown meme mania,” said Brent Kochuba, founder of derivatives-data firm SpotGamma.

Of course, it’s not just meme-bros going for broke here. The busted and desperate are gambling alongside the life savings of 30% of the population in the 55+ age group, who own some 79% of now grossly inflated stocks and equity funds (Deutsche Bank Research)—US market cap to GDP shown below since 1970, courtesy of Gurufocus.com.
In keeping with the timeless truth that the public buys most at the top, Canadians who were all in on the real estate bubble in 2019-2022 are now piling into the stock market; see Canadians Pull Back on Real Estate, Set Record Investment in US Stocks. Thanks to weakness in the greenback, US stocks are about flat year-to-date for Canadian investors.

Canada’s stock market is looking bubblicious too.When speculative bubbles burst, like in 2000, 2008 and 2022, everyone at the table gets taken out on stretchers. Crazy is as crazy does. Those who cannot afford to lose heavily and spend years trying to grow back losses are wise to resist the madness of crowds.

The Next Twelve Months Price-to-Earnings ratio (NTM P/E, shown below courtesy of ISABELNET) is one of the historically relevant forward-looking valuation metrics that compares a company’s current share price to its projected earnings over the next 12 months. Today’s sky-high US equity valuations, highlighted in dark blue, are comparable only to the rare, infamous peaks of the 2000 and 1929 stock market bubbles.  The 20-year median NTM P/E is marked in grey for each index.There has never been a time when extreme investor overconfidence was not ultimately punished by equally dramatic loss cycles.

Unlike most professional portfolio managers, individuals do not have to stay invested in asset bubbles. Grantham calls this “the amateur advantage”. Unfortunately, most lack the discipline and insight to resist the madness of crowds, and they tend to buy most near the top of the price cycle. Most wait until the hammer lands on the head and then react by selling and firing their financial advisor after the inevitable loss cycles.

As Grantham notes, with the world dominated by financial salespeople, “the average investor will never hear that the market is dreadfully dangerous and overpriced when it is, in fact, dreadfully dangerous and overpriced.”

Other international market valuations are less inflated than the US today, but they are highly correlated nonetheless. The Canadian stock market has repeatedly declined pretty much in lockstep with American markets, most recently in 2000, 2008, 2020, 2022-23, and February 2025.

The chart below, courtesy of my partner Cory Venable, highlights the close correlation between the S&P 500 (in red) and Canada’s TSX (in black) during drawdowns (red arrows), since 1990.

This week Wilf speaks to the man who has predicted some of the biggest stock market bubbles of the last 5 decades – Jeremy Grantham – who, on the day that NVIDIA hits $4trn market cap predicts that we are nearing the top of another major bubble, likening Nvidia’s success to the “guy selling shovels at the peak of the gold rush”. Striking a very bearish note on the US Magnificent 7, he discusses the pain that predicting crashes too early causes finance professionals but how private individuals have advantages as long as they step back and look at the data, as he shares his advice for investors following a legendary career. Here is a direct video link.

Some bonus content from Wilf’s conversation earlier this week with the Founder, Chairman, and Long Term Investment Strategist at GMO, Jeremy Grantham, this time focusing on the biggest long term risks he sees for the market, and humanity, including toxicity, declining fertility and climate change. Here is a direct video link to part 2.

Grantham’s logline:

“Don’t be conned into being super optimistic by the professionals, by the industry that makes money from overconfidence–lots and lots of money. Um, look around for signs of crazy bubbly behaviour, to the moon, to the moon sort of thing. Um, which we have seen as splendidly these several years as we have ever seen in history, which is a high hurdle.”