Recently, there has been chatter in my inbox and in financial publications about a potential stock market bubble. As you may recall from prior communications, “Structure Over Prediction” is a core tenet of our Successful Investor Mindset. You will never hear anybody on our team truly predict a bubble burst or market downturn, and the same holds true for a stock market boom. Ask us if the stock market is going to go up, and we’ll likely respond with Robert’s favorite quip:

We think the stock market will double! It just might get cut in half first and take a decade or longer to get there.

With all the noise about stock market bubbles and analogies to the dot-com era, I thought it would be a suitable time to look at some interesting statistics about the current environment as well as market declines and recoveries.

Historically, the P/E ratio is the most basic way to measure whether the stock market is overvalued or undervalued. This ratio has only been higher during the dot-com bubble, which indicates a very expensive market. What conclusions can we draw from the data? The data shows that one year after a high valuation there were still several time periods in which the market increased more than 10%. So the good news is that the market may go higher. The data is less optimistic if you look further out. The average 5-year return after a P/E ratio this high is slightly negative.

Conclusion: Market timing is a luck-based strategy. Expensive markets may go up in the short-run, but the risk versus reward may not be in your favor. Now is a good time to review your risk tolerance and your stock market exposure with us.

Bear markets are typically defined as drops in the market of 20% or more. The most recent bear market was earlier this year, and the market has already risen above previous highs. Bear markets are never enjoyable, but they are unavoidable when you want to have long-term gains in the equity market. Nobody in the history of stock markets has been able to avoid these bear markets while also participating in the bull markets with regularity.

Conclusion: It pays to be consistent, disciplined, and patient. Remain focused on long-term goals and strategies.

Recent bear markets have recovered very quickly from their bottoms (2020, 2022, and 2025). But it doesn’t always happen that way. Remember the lost decade ending with the global financial crisis in 2008? That market didn’t recover until 4 years later! Then the market continued to go up for most of the 2010s until finally hitting another bear market in March 2020 as COVID took over our world and economy.

Conclusion: For most investor time horizons, bear markets are usually a good time to get more aggressive in your portfolio even if it makes you feel like doing the opposite.

In July 2022, the yield curve “inverted” meaning short-term interest rates were higher than longer term interest rates. When this happened the investment and economic world declared that a recession was coming. It was talked about as if it were an absolute certainty because before 2022 the yield curve inversion had been followed by recession every single time. Yet, we saw no recession follow. I like to say that the economy and market like to serve up “humble pie.” When consensus gets so one-sided, the economy and market tend to pivot. The crowd is not your friend and statistics are great, but the world adapts and evolves.

Conclusion: Don’t forget about “structure over prediction”. Even when a reaction seems like a slam dunk, it’s usually still best to stick with your current investment structures.

Bottom line: No matter what happens in the upcoming quarter (and beyond), we are there for you. Call us and start a dialogue whenever you have a financial concern. Secondly, allow us to help you understand your allocation to the equity markets so you are educated to your exposure and its potential risks. Lastly, risk tolerances change over time so let us review your long-term risk tolerance. This will help you prioritize long-term strategies we believe lead to better long-term results.

Life is full of challenges, and today’s world feels especially turbulent. In moments like these, optimism isn’t about ignoring reality—it’s about focusing on what you can control and believing in the possibility of better days.

Sir John Templeton once said, “There is nothing more certain than uncertainty.” His words remind us that while we can’t predict the future, we can choose our response. Start by identifying what’s within your control: your attitude, your effort, and your priorities. These are the anchors that keep you steady when everything else feels uncertain.

Optimism doesn’t mean pretending everything is fine. It means acknowledging difficulties while taking small steps forward – learning something new, connecting with others, or practicing gratitude. Even in hard times, there are things worth appreciating: relationships, opportunities, and moments of beauty.

Bill Gates Sr. (Bill Gates’ dad!) in his book, Showing Up for Life, emphasizes the power of simply showing up, being present, and remaining committed. For me, I show up for my family – I now have three granddaughters under the age of five! I stay involved with my passions like gardening, improv, acting, and working to stay fit. Giving back is important to me, which is why I’ve been a member of San Clemente Rotary for 34 years, focusing on helping others in my community and around the world. Lastly, having you as my clients gives me purpose, and for that my team and I are incredibly grateful.

Business Update! Starting next quarter, we will be using a new software called “Bookings” to help schedule your Financial Strategy Meetings. When it’s time for your next meeting, you will receive an email with a link. It will bring you to a calendar page and let you book your appointment. If you need a walkthrough, don’t hesitate to reach out to our team. Tax Season is Coming! 1099-Rs are mailed at the end of January, and 1099s are mailed in mid-February for most clients and mid-March for some others. If your final documents were mailed to you in March of 2025, then it’s likely the same for 2026. Please use this to make an informed decision regarding when to meet with your tax professional. If you meet in January or February, you may not have the complete picture to provide to them. Need a referral to a qualified tax professional? Email me at [email protected].