Note: At the beginning of the year, we decided to move to a quarterly distribution that would incorporate both our perceptions of market movements and events and more traditional wealth management topics (no matter how boring they are).
In the last piece, we spent some time on the idea that not all bubbles are created equal. Some are built on little more than speculation and leverage, while others are tied to real shifts that ultimately change how the world works. We presented the idea that the current enthusiasm around artificial intelligence has many of the characteristics of the latter. There is real investment taking place, real infrastructure being built, and likely real productivity gains to come.
But even a “good” bubble is not painless.
What has started to stand out more recently is not the opportunity itself, but the behavior forming around it. The conversation has shifted. It is no longer centered on understanding what is being built or how it will be monetized over time. Instead, it has moved toward participation—how to gain exposure, how much to allocate, and whether one is falling behind by not leaning in more aggressively.
That shift matters. It tends to occur later in a cycle, not at the beginning. When fear of missing out replaces curiosity, the market is usually no longer in its early stages of price discovery. As Warren Buffett once put it, ” What the wise do in the beginning, fools do in the end.”
None of this invalidates the long-term opportunity. It is entirely possible (likely, even) that artificial intelligence becomes one of the more important technological developments of our time (though it is tough to bet against indoor bathrooms). But markets do not move in a straight line from innovation to value creation. They tend to overshoot, pulling forward returns and embedding expectations that are difficult to meet in the near term. When that happens, outcomes become less about being directionally right and more about how and when that view is expressed.
That distinction is where most of the damage tends to occur. Investors rarely lose money because they identified the wrong long-term theme. They lose money because they entered into it with the wrong structure, at the wrong time, or with expectations shaped by recent price behavior rather than underlying reality.
Cisco Systems is a useful reminder of that dynamic. At the peak of the dot-com era, it was one of the dominant companies in one of the world’s most important industries. That part turned out to be true. Networking became foundational to everything that followed. But investors who bought into that story at the height of enthusiasm spent decades waiting to recover their capital, even as the broader technology ecosystem flourished around them. The theme was right. The timing—and the expectations embedded in the price—were not.
We have seen this pattern repeat in different forms. Personal computing, mobile technology, and cloud computing all reshaped the landscape. In each case, the long-term winners were significant, but the path to get there was uneven and, at times, unforgiving. Many participants did not experience those gains because they were forced out during periods where expectations and reality temporarily diverged.
That is the part of a “good bubble” that tends to be overlooked. It can still involve meaningful dislocations. Capital still gets misallocated. Narratives still run ahead of what can be delivered. Prices still move in ways that are disconnected from the timeline of actual outcomes.
Our process is built with that in mind. At its core, it leans against prevailing sentiment, becoming more cautious when confidence is high and more willing when fear takes hold. It is a simple concept, but in practice, it is far from precise and often deeply uncomfortable as we fight against herd mentality. It tends to feel wrong near peaks, when everything appears to be working, and equally wrong near troughs, when very little is.
At the moment, our signals are not pointing to extremes in risk, but they are beginning to suggest a need for a more measured posture. This is not an environment that appears fragile in a structural sense, nor does it suggest that the broader trend has run its course. However, it does reflect a backdrop where valuations are fuller, positioning is more crowded, and behavior is beginning to shift in ways that warrant attention.
That does not call for stepping away, but it does call for discipline. It argues for maintaining balance rather than narrowing exposure, for rebalancing rather than chasing strength, and for staying anchored to a process rather than reacting to narrative momentum.
If this is a “good bubble,” it will likely leave behind meaningful and lasting change. But that does not mean the path forward will be smooth, or that all participants will benefit equally. As is usually the case, outcomes will be determined less by the theme itself and more by how it is navigated along the way.
Originally posted on May 9, 2026.
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Originally posted on ETF Trends
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