It’s Supposed to be Hard
The stock market threw something of a fit on Thursday, and a lot of investors were confused.
No big company failed.
Demand for AI still looks like it’s off the charts.
Why would the AI trade be down so badly if the numbers keep going up?
I’ve been laying out my thesis for months (here, here, here, and here, for example) and explained why I’m not getting in front of what may be a steamroller. And that’s worked well of late. The Asymmetric Portfolio is up 1.7% this week thru Thursday, while the $Invesco QQQ(QQQ)$ ( ▼ 0.01% ) is down 0.75% and the $SPDR S&P 500 ETF Trust(SPY)$ ( ▼ 0.52% ) is only up 0.1%.
Yes, my positioning with a non-AI portfolio has paid off this week.
But let’s be honest, it hasn’t paid off this year. Go to the start of 2026, and the Asymmetric Portfolio is trailing the $S&P 500(.SPX)$ by 26% and the $NASDAQ 100(NDX)$ by 29%.
Investing is hard.
Whether you’re underperforming this year or this week, it’s important to remember that and keep your head when the market presents opportunities and risks.
Even Legends Aren’t Making 50% a Year
I’ve been thinking a lot lately about what the best of the best have been doing and would be doing in this moment.
Would Buffett be buying AI and semiconductor stocks?
Absolutely not!
In fact, Buffett famously sat out some of the biggest opportunities in the last 30 years, simply avoiding tech stocks for more of that time. And there were times that Buffett looked like a fool for missing the “obvious” stocks of the day.
The chart below shows the performance of Berkshire Hathaway (purple) and the S&P 500, represented by the $SPY ( ▼ 0.52% ) ETF. The chart starts at the beginning of 1996, and you can see that by March 2000, Buffett was up 31.1% to a 125.6% gain for the S&P 500. You can imagine the headlines. Buffett doesn’t understand the internet. He’s toast. He’s too old. His best days are over.
Over time, it was Buffett who came out on top after the bubble burst.
Compare Buffett’s performance during the same time to the Nasdaq, where the $QQQ ( ▼ 0.01% ) ETF only started trading in March 1999. Within a year, Buffett was underperforming by nearly 200%!!
Of course, in both cases, Buffett would eventually come out ahead.
He never invested in the hot stocks of the day. He essentially missed the PC era and the internet buildout. He only bought $Apple(AAPL)$ ( ▼ 0.14% ) in the mid-2010s when it was already one of the biggest companies in the world.
But the legendary investors know that making good long-term decisions is more important than owning the hottest stock of the day. Their job is to assess the risk and opportunity in the market over a long period of time.
At times like this, it’s easy to point to stocks that are going up when the entire AI trade is going up.
It’s a lot harder — and less popular — to do so with risks. Take a look at how upset the internet got when I pointed out that higher yields on debt and a falling stock price are a downward spiral for Neoclouds. How did Neoclouds get a meme following?
Here’s the other point I think about. I see a lot of the same people in the AI trade posting about 50%+ annual returns. And a lot of them think it’s sustainable.
50% annual returns aren’t sustainable, even for the best in the business.
All too often, I see investors posting a year or two of phenomenal returns.
The same investors are often silent a year or two later because they doubled down on an unsustainable trade and lost it all.
It’s why I write about cautionary tales like $Plug Power(PLUG)$ ( 0.0% ), SunEdison, and the dot-com crash. Until you’ve gone through these moments, it’s hard to explain what they’re like or how they unfold.
Investing seemed easy for a lot of people early in 2026.
But investing is hard.
Short-Term vs Long-Term
I often see investors think they have some kind of edge because they can predict if a company is going to beat/miss earnings, they listen to a management interview, or know what the valuation of a company is based on 2027 estimates.
Sure, I could predict Micron is going to sell all of the memory it’s going to make at high prices in 2027. But everyone knows that.
We have no real, sustainable advantage over the market on anything shorter than a 6-month timeframe. Companies like Citadel, Jane Street, and Bridgewater are using AI and billions of dollars in compute to make sure of that.
But what’s going to happen in 2032?
Will supply be higher? Will demand grow faster than supply? Where will prices be? Memory has been a commodity before; why is this time different?
We could have the same debate about neoclouds, equipment companies, fabs, and even chip companies like $NVIDIA(NVDA)$ ( ▼ 0.59% ). I bet 2027 is going to be great! But what about 2032?
Anyone can understand what’s coming in the foreseeable future. Estimates and guidance are easy to find.
What’s harder — and a bigger opportunity — is being able to think strategically about where a company will be 5, 10, 20 years from now.
No fund has an incentive to have that kind of time horizon.
Our Only Advantage
Our ONLY sustainable advantage over the market is to have a longer time horizon than the funds moving the market.
This is why I write so much about strategy.
Beating or missing next year’s numbers is great, but the real gains are in understanding where there’s a structural shift going on in the market. Where there’s a winner that can compound for decades, that everyone underestimates.
This goes for both buying stocks and avoiding stocks.
In the AI trade, I see nearly every investor acknowledge that there’s probably a bubble eventually, but they don’t see it right now.
That’s like saying, “I’m definitely going to get into a motorcycle accident eventually, but I’m not going to wear a helmet today because I’m just going down the street and nothing is going to happen today.”
I also think there’s a bubble in AI.
So, I choose to NOT invest in “AI stocks”.
I have no long-term advantage in picking the winners there.
Yes, that has hurt my returns in 2026, but I think it will pay off long-term, just like Berkshire sitting out the dot-com bubble.
It’s hard to sit out this trade.
And underperforming in public is hard.
It’s Supposed to be Hard
The market humbles us all eventually.
If there were a clear, repeatable advantage in a sector of the market or style, the market would figure it out and exploit it. I think a lot of investors who thought Micron was “obvious” at 8x earnings earlier this year are learning that the hard way.
At the end of the day, our only edge is the ability to have a longer time horizon than any fund, marketmaker, or AI trader can have.
We can think in years and decades.
They can’t.
It’s hard to think like that and keep your head when performance isn’t strong, or the market is chasing unrealistic hype.
And that’s why this is hard.
If it weren’t, there would be a lot more rich and famous day traders.
Markets are always moving - and sometimes, the best move is knowing what works for you.
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