There is a question on many minds today: Is the AI bubble finally starting to pop? After years of exponential hype, skyrocketing investment, and aggressive infrastructure build-outs, a growing chorus of tech leaders, economists, and market watchers are questioning whether the current AI boom is sustainable. And if it is popping, what does that mean for the stock market?
Below are a few things that have people concerned.
META Capital Expenditures
META recently announced a major increase in AI-related capital spending — and the stock market did not like the news. The stock dropped roughly 20% in response.
Many investors took this as a sign that the market is skeptical about the return on those investments.
The big AI players will invest nearly $400 billion this year alone. The good news is that these companies have the cash flow to fund it. Smaller companies and startups, however, do not have the financial strength to weather AI ROI disappointments.
ROI Concerns
A recent MIT study suggested that 95% of AI pilot programs are not yet showing measurable benefits. If business results from AI don’t materialize in a meaningful way, a major correction in the AI sector could follow.
That being said, the MIT findings don’t entirely align with many reports of AI-driven job cuts and real productivity gains. I’ve seen studies showing that software developers can increase productivity by several hundred percent when paired with an AI coding agent. Companies are regularly announcing job cuts due to AI productivity improvements.
It is also very likely too early to fully measure the long-term business impact of AI. These systems are still in the early stages of real-world deployment.
Valuations
Valuations for many new AI companies do look aggressive. Some AI startups have annual revenues under $10 million but market valuations above $10 billion. Some will grow into those valuations — many will not. This dynamic isn’t unusual with emerging technologies.
However, the valuations of the established AI leaders are supported by strong revenue and profit growth. Microsoft, for example, trades at a price-to-earnings ratio of about 35. Given its profitability and growth trajectory, that valuation isn’t unreasonable.
The Future
As we move further into the AI era, we should expect volatility. Smaller and newer AI companies are likely to experience dramatic stock price swings. Even so, I do not expect startup failures to significantly impact the broader stock market.
If AI returns fail to materialize for the major players — the “Mag 7” — the impact will be larger, but still manageable. These companies have strong balance sheets and generate massive profits from other parts of their operations.
This is why I do not expect anything resembling the dot-com collapse of 2000–2001. Back then, tech stocks fell more than 75%. Companies were overvalued by 60% or more, and many early dot-com businesses had no profits and flawed business models.
Today, stocks appear overvalued by roughly 20%, and I do not see major credit risks forming around AI investments.
If significant AI disappointments emerge, stocks could easily fall 30%. But a 30% decline is actually a below-average bear market — declines of 25% to 30% happen regularly.
Over the past week, the stock market has fallen about 4% to 5%. It’s too early to tell whether this is the start of a major decline or simply a normal correction. Major declines don’t happen overnight; the dot-com crash unfolded over more than two years. The average bear market plays out over roughly 11 months.
Regardless of what triggers the next market downturn — AI-related or otherwise — retirement investors need a strategy that protects their savings from major losses.
My investing system is designed to do exactly that. Reach out if you’d like to immediately get the peace-of-mind that comes with a high growth investing system that limits losses in downturns.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
The stock market is the best place to invest for the long term — generating annual returns of around 10% over 20- or 30-year periods. Unfortunately, those returns are far from consistent in the short term.
So how inconsistent are they?
To answer that, let’s look at the annual gains for the S&P 500 over the last 30 years (1995–2024). This period is particularly interesting because it includes:
two massive bull markets
two devastating bear markets
The chart above shows the annual returns for each of those 30 years. (Returns exclude dividends.) Over the entire period, the average annual return was roughly 10%.
Consistently inconsistent, right? Few individual years land anywhere near that average.
The "experts" tell us that the stock market is rational - that it is continuously repricing based on the most current and complete information. They also suggest that the market is forward looking and focused on the long-term future. The data suggests that the opposite is true.
Sorting the yearly returns from best to worst provides additional insights.
20 of the 30 years delivered gains of 10% or more.
5 of the 30 years delivered losses of 10% or more.
This is the reality of stock market investing:
Most of the time—about two out of every three years—the market posts sizeable gains.
A small percentage of the time—roughly one out of every six years—investors endure large losses.
The remaining years deliver modest or flat results.
Stock market gains should not be this inconsistent. After all, the underlying businesses are far more predictable. The companies in the S&P 500 typically grow profits by 8% to 9% per year, with only rare down years where profits fall by 15% to 20%. Sales and profit growth are usually steady.
It’s not business results that create wild market swings—it's human emotion.Investors repeatedly overreact to both good news and bad news. Excessive pessimism (fear) drives stock prices far below fair value, while excessive optimism (greed) pushes them into the stratosphere. As long as humans make investment decisions, volatility will remain the norm.
Of course, this volatility makes investing uncomfortable. We all love the 20% up years, but those 25% down years are painful.
The investment industry’s traditional solution is simple: buy and hold. Ride the market up, and hold on for dear life on the way down. They often suggest adding low-yield bonds for “protection,” even though bonds offer meager 3% returns—and, as we saw in 2022, bonds can lose money too.
If you’re satisfied with annual returns of 7% or less, then the standard advice works fine.
But I wasn’t satisfied with “buy and hold.” Watching my stocks drop 40% in a few months seemed dumb. And I’ve never liked bonds—weak returns and real downside risk.
So instead, I decided to embrace market volatility.The stock market cycles through well-defined patterns. Using the same investment approach in every cycle never made sense to me.
I built a data-driven model that identifies these market cycles and adjusts the investment strategy accordingly—investing aggressively (100% in stocks) during growth cycles and moving out of stocks during downturns.
The result: You can capture big gains and avoid big losses.
Below is the distribution of annual gains from my system over the same 30-year period. Losses still occur—no system can eliminate them—but they can be significantly reduced, and without sacrificing strong returns in the up years.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
People at or near retirement age face a classic investing dilemma. You need strong investment returns to ensure you don’t run out of money in retirement. But you also can’t afford to suffer large losses in a stock market collapse.
The investment industry has long told us that you can’t have both—growth and safety.
We’re told that high returns come from aggressive growth funds, often concentrated in the technology sector. Many of these funds can generate annual gains close to 15%. The catch, however, is that they’re extremely volatile—capable of losing 30% or more in down markets. That’s true. Aggressive growth investments come with the risk of significant short-term losses.
For retirees, that kind of volatility can devastate a retirement plan.
We’re also taught that bonds are “safe” investments. But bond returns are much lower than stock returns, and bonds can lose money too. On average, bonds lose less in bear markets but earn far less in growth markets—typically 3% to 4% per year compared to about 10% for stocks.
It can seem like a no-win situation. Growth helps your retirement income, but it comes with high risk. Bonds feel safer but limit your income potential.
Investment professionals generally create a balance of stocks and bonds based on your age and risk tolerance. For older investors, they tend to favor conservative allocations, reasoning that the risk of a major loss early in retirement outweighs the benefit of higher returns.
The result? Many retirees end up with portfolios that produce mediocre returns (5%–6% per year) yet can still lose 25%–30% in a market meltdown. That’s the worst of both worlds.
Is that really all the trillion-dollar investment industry has to offer? Keep in mind, they charge high fees for these “solutions.”
I wasn’t willing to accept that reality. I never planned to get into the investment business—I was forced to. Necessity truly was the mother of invention in my case.
The stock market produces excellent long-term returns about 85% of the time—typically 15% to 20% per year. But the other 15% of the time, it loses money at a rate of roughly 37% per year.
I believed that if I could find a way to capture most of the upside during growth periods and avoid most of the losses during downturns, I could achieve higher returns with protection and safety.
I discovered that many others had tried to solve this problem, and some achieved decent results. But I found major flaws in their methods. Most relied on traditional stock market statistics—such as 200-day moving averages or indicators like MACD and RSI—that react too slowly in downturns and recoveries. While these approaches often perform better than the standard stock/bond mix, they’re still far from ideal.
So I set out to develop my own statistics and computer models. Fortunately, powerful analytical tools are readily available today.
Using hundreds of thousands of data points, and after about six months of work in 2019, I created my core investing system. It outperformed anything I’d seen for ordinary investors. Based on extensive backtesting, my system could outperform the S&P 500’s annual returns by 30% and reduce losses in market downturns by 60%.
I also knew that any successful system must remove emotion and guesswork. A disciplined, data-driven approach is essential. Predicting short-term market moves has always been impossible. Relying on emotion or intuition is not a recipe for success.
I came across a great investing quote recently: “Invest based on what you see, not what you think.”
I love how this quote succinctly sums up what works and what doesn't work in investing.
We’ve all seen the same talking heads continually—and incorrectly—predicting the next crash.
My objective then and now is simple: generate significant growth in retirement accounts while helping people sleep well at night. Having an automated, data-driven system that takes judgment and emotion out of the process is what investors truly need.
Knowing that you’re always properly invested—and that an automated system is protecting your life savings—leads to a terrific retirement. You get the financial freedom you deserve, without the stress of watching the market every day.
Since I’m a perfectionist, I never stop improving my investment system. Over the past six years, I’ve made significant upgrades each year—boosting returns and further reducing losses. Some of the biggest advances have come in just the last six months.
Despite what the investment industry tells you, you can have Growth AND Safety. Don’t settle for weak, conventional solutions. You deserve a better retirement.
After years of helping people through my investment newsletter, I’m excited to announce that very soon, everyone will be able to access my powerful investing system directly—with one click—from their existing brokerage account.
If you’d like to learn more about my investing system and how you can access it, reply YES to this email, and we’ll schedule a quick call.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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