Prepping for 2025
The Wall Street Journal released an interesting article in which they assembled ten experts and had them make predictions. Since today is a pretty solid day, nothing is really happening, and I am actively fighting the urge to write about Tesla being wildly overvalued, I think we should talk about these predictions, and as a highly-respected member of the finance field, I can give my opinion.
1. “Beyond the Magnificent Seven.” This section was all about how the wider market needs to be focused on. I agree, and I think I was about a year early on this. Microsoft is the only member of the Mag Seven still in my portfolio, and that’s just because I think it is the best one by far. This guy, David Kostin, recommended taking a look at mid-caps because so much of their debt is floating, and interest rate cuts should lower payments and allow for more maneuverability. I think he is right but for the wrong reasons. The Fed will cut once, maybe twice in 2025, and those cuts will likely be pretty weak. Midcaps are, on the whole, pretty cheap, and they should be looked at. Then, Kostin recommends targeting companies that will surely be bought out in the coming year, but that strategy, I wholly disagree with.
Finding a company you are sure will be bought out, without some insider knowledge of some kind (I LOVE insider trading), is a very dangerous, lazy, and useless game to play. It is so much easier and more profitable to find a high-quality company at a good price and hop on that ride. Then, Kostin, mentions that we are moving into a phase of AI where there will be non-infrastructure (semiconductors, data centers) “companies whose revenues will be enhanced by a widespread adoption of AI.” That might be a little trickier. I do love ServiceNow, a company that is a bold AI play, but I am a bit worried about calling 2025 as the year where things start to come together into billions of dollars. I want more tangible signs beyond a few chat bots.
2. “Stick to large-cap growth stocks.” You can never (basically) go wrong with large-cap tech. Microsoft, Meta, Apple, Nvidia, Amazon, Google, never Tesla, TSMC, Netflix, etc… are all great companies. They are high-quality, and your portfolio will move along at a nice clip, but these companies do place a bit of a ceiling on your portfolio because they are already so large.
3. “Don’t expect big stock-market gains.” Yeah, that’s fair, at least for the broader market. It may be much more like swimming upstream for a minute or two, just became so much optimism is priced in. However, I do think there are some undue fears priced in as well: Donald Trump, inflation, and China are all fears that are, I believe, relatively overblown.
4. “Not-so-fast on large-caps.” This dude is just worried about risk, and wants people to be more overweight on bonds, BORING, but probably not awful advice, if you are risk-scared.
5. “Prepare for bumpy weather.” In this section, Chris Senyek from Wolfe Research (holy epic name), writes about how Trump’s odd policies, particularly around tariffs and immigration might freak out the market. Maybe that will happen, maybe. I think it is more likely that for a week or two there is some uncertainty, but that moderates in the House and Senate, along with Dems obviously tank a lot of the more intense Trump stuff around tariffs, and that he sort of forgets about it, since he does not have to get elected again.
6. “It’s time for value.” I do think that value maybe starts playing a slightly larger role in the world, but value has been nearly meaningless for two decades now. I do not see value becoming the primary focus of investors all of a sudden. That said, I do think that small-cap tech stocks get the best of both worlds, and I think there is both good value and genuine potential there. Sometimes I think value investors lose sight of genuine intrinsic value and take too much feel out of investing, leaving them very vulnerable to non-quantitative variables.
7. “Bonds over stocks.” There are very few conceivable universes where I would place more of an emphasis on bonds instead of stocks, and 2025 is not one of those universes.
8. “Prepare for more volatility.” Yeah, for sure, there will be more volatility next year, but I do not think that is a bad thing as long as the general trend is positive, as I believe it will be.
9. “Watch out for inflation.” I see why people are afraid of inflation. Donald Trump, in his ever-infallible wisdom, is prepping to deport millions and to artificially raise prices by instituting wholly unnecessary tariffs. I do not share this fear because, again, I think tariffs won’t even be talked about as an issue six months from now. Donald Trump does not care that much about following through on this because he does not have to get elected again, and he will face significant blowback from his own party if he does.
10. “Interest-rate uncertainty.” Yeah, I think there is a bit of uncertainty, but I am pretty sure that my prediction will be correct. I am pretty sure that The Fed will cut interest rates about 75 bps this year total.
I am 100% sure that 2025 will be a great year for every Pax Romana Capital reader and every Pax Romana Capital investor (just me), and that we will all make one billion gajillion dollas.
