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LAST WEEK, I MENTIONED the 17th century Dutch tulip bubble. There’s a lot we can learn from history. Current events, however, can teach us just as much. Below are three valuable lessons I see in today’s market.
Myopia. Open any finance textbook, and you’ll find that most of its ideas are built on the notion of “present value.” This simply means an investment should be worth the sum of its future cash flows. A public company’s stock price, for example, should correlate with its ability to generate profits in the future. This is the reason investment markets generally look forward.
For professional investors, this is their North Star. When researching a company, Wall Street analysts try to estimate its revenue and profits for future years. This can be a very logical approach. The challenge, however, is that these estimates are often guesses because there are too many factors that could affect any given company at any given time.
Consider a recent example: On April 2, in a policy statement dubbed Liberation Day, the Trump administration announced a set of steep new tariffs. This announcement caused the stock market to sell off, with some companies affected much more than others. Just a week later, the administration changed course and announced that most of these tariffs would be placed on hold. The stock market rebounded nearly 10%.
This one example illustrates an important dynamic: Not only do investors not know which way public policy is headed, but policymakers themselves also don’t know. Although markets generally look forward—an approach supported by economic theory—this is of little value, because no one can see around corners. It’s generally fruitless to make portfolio changes based on expectations about the future.
Attention span. In a recent commentary, Bloomberg observed that global markets exhibited contradictory behavior: “The never-ending back and forth on tariffs. An escalating war in Ukraine. Growing concern about the U.S.’s mounting debt and deficits, and a congressional budget process that seems unlikely to address the problem. Sounds like a recipe for a bear market, and yet global stocks just hit an all-time high.”
Why have stocks been rising despite these negative trends? One explanation is that investors believe the White House won’t follow through on its most serious tariff threats. Although that’s one possibility, I believe that isn’t the only reason. Consider Tuesday’s White House announcement stating that it plans to double steel and aluminum import duties. Clearly, we aren’t out of the woods on tariffs.
Why do investors no longer seem fazed by trade-related news? I believe there’s another factor at play. An event that occurred earlier this year can help us understand why.
In late January, a new AI tool known as DeepSeek made news when it became the most downloaded application from Apple’s App Store. Why? According to news reports, DeepSeek requires a fraction of the computing power compared to those needed to build other AI services like ChatGPT. The market reacted swiftly: Nvidia, the primary supplier of semiconductors to AI firms, saw its stock sink 17% in one day. If DeepSeek’s claim that it requires a fraction of computing power is true, Nvidia is in big trouble.
Since then, Nvidia shares have recovered nearly all their earlier losses—but not because the DeepSeek threat disappeared. There has been no update on DeepSeek’s claim to be built on fewer chips. I believe Nvidia’s stock recovered for the same reason that the overall market recovered, despite the risks Bloomberg highlighted: Investors simply have short memories and short attention spans.
It’s hard to explain this phenomenon. Perhaps it’s because news cycles move quickly. Whatever the reason, it’s not rational, but it is reality. And it’s the reason I believe investors are best served by never reacting too strongly to the day’s news. As Tony Hsieh, founder of Zappos, used to say, “Things are never as bad or as good as they seem.” This motto applies equally well to investing.
Permanence. In the investment world, there’s the expression that trees don’t grow to the sky. That is, nothing is forever. Kodak, Xerox and BlackBerry are examples. But when we look at today’s market leaders—Apple, Google and Amazon—it’s hard to imagine that they may one day suffer the same fate. We may, however, be witnessing something like that happening now.
Since ChatGPT’s 2022 arrival, cracks have appeared in Google’s market dominance. According to industry data, Google’s search engine market share, which was over 90% for more than a decade, slipped by a handful of percentage points. About a month ago, Eddy Cue, an executive at Apple, confirmed this. Google traffic on iPhones, he said, had fallen in April for the first time ever. This caused Google parent Alphabet’s shares to fall 7% the next day.
What’s interesting is that Google wasn’t completely unaware of AI before ChatGPT’s release. For years, it had been working on its own AI tool. But for whatever reason, Google hadn’t released it. This decision was reminiscent of Xerox’s famous Palo Alto Research Center (PARC), which invented everything from the mouse to the laser printer to local-area networking, but failed to commercialize any of it.
Google’s decision to keep its AI product under wraps was also reminiscent of Kodak’s 1970s decision refusing to commercialize the digital camera, invented by one of its engineers. Why? Kodak feared it would cannibalize its film business. According to Steven Sasson, the engineer who created that first camera, management’s reaction was: “That’s cute—but don’t tell anyone about it.” The outcome: Kodak ultimately fell into bankruptcy.
These consequences, however, aren’t always a one-way street. After years of dominating the market with its Windows software, Microsoft was repeatedly caught flat-footed—first by the internet and then by mobile computing—but it ultimately found new businesses, and today it’s larger and more profitable than ever.
Which way will Google go? It’s an open question. While Google is losing its market share in the traditional search engine business, it’s quietly gaining traction with its Waymo self-driving cars—an important opportunity since the automobile market is exponentially larger than the search engine market.
The bottom line: Investment markets are wholly unpredictable. Even when a given trend seems robust, it can reverse. Even when policymakers make pronouncements, they can change their minds. Even when a company dominates its industry, it can be usurped. As simplistic as it may sound, broad diversification will likely continue to be investors’ best defense against an uncertain future.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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i remember, a few yrs ago, j bezos said amazon will work until it won’t.
it amazes me how similar amazon is to the old sears catalog