In September 1988, Jim Pittenger wrote an article titled “Sensationalism and the Small Investor” in which he discusses the emotions constantly at play in the markets and how the media leans on these to garner clicks and eyeballs. Before we discuss what’s driving the markets and why now may be a good time to spend some money, we’ll revisit Pitt’s four-ingredient antidote to sensationalism. Let’s dive in…
Fear and greed
We’ve written about these two emotions before, and no doubt will again. Investor psychology doesn’t just impact the markets; it is the market. As Pitt writes:
“Virtually, all of these press clippings appeal to the emotion of fear. Those who avoid fear always appeal to the investor’s greed…Fear and greed are the active ingredients in the recipe for financial sensationalism.”
The media thrives on emotion and those are the two levers that guarantee clicks, eyeballs, and ad revenue. Headlines are crafted to sound like the world is ending or you’re missing out on the deal of a lifetime. Fear keeps people glued to the screen, while greed promises easy money and success.
Pitt argues that while this sensationalism can’t be eliminated, investors can protect themselves by focusing on four key traits: Intelligence, Consistency, Quality, and Patience (ICQP).
Intelligence
Investing does not require a high IQ, but it does require common sense. Investors should understand the basics. Bonds provide income and offer perceived stability but carry two main risks. First, interest rate risk, in which the price of a bond decreases as interest rates rise (and vice versa). And second, credit risk, or the risk of the bond issuer not being able to pay the interest due or pay you back your principal.
On the other hand, stocks offer growth but are vulnerable to economic cycles, industry disruptions, and creative destruction. You don’t know what your return will be when you buy a stock or stock fund, which is why investors demand a higher expected return from stocks than from bonds.
Intelligent investors can avoid mistakes by knowing what they own, why they own it, and how much risk they can tolerate. Markets will always produce noise, but today’s headlines are typically tomorrow’s forgotten stories.
Consistency
A consistent approach includes investing regularly, sticking to a long-term plan no matter what’s happening in the world, and rebalancing when needed. Consistency helps to smooth out emotional decision-making. It’s the job of the investor and their advisor to remember that long-term discipline is what compounds, and diversification is a key component. As Pitt writes:
“My tenure in the financial industry has allowed me an opportunity to look inside a variety of customer portfolios. The common thread that links all the successful investors is their ability to accumulate assets. Very few wealthy people own a lot of cash; their money is invested in financial assets, use assets or working assets. How are these fortunes amassed? The same way a building is built, one brick at a time. The family patriarch who possesses a net worth of many millions probably didn’t wake up one day and invest all those dollars in their current assets. The more likely scenario is a systematic allocation of cash flow into stocks, bonds, real estate, etc. In order to do this, the assets you choose need to fit a long-term plan.”
Quality
High-quality investments are easier to hold through difficult markets. When you own businesses you believe in, you’re less likely to panic-sell. Quality investments aid in consistency, providing confidence to stay invested over full cycles.
What do we mean by quality? Financial strength. Consistent profitability, a strong balance sheet, and healthy profit margins. A durable competitive advantage, or a “moat” as Warren Buffett calls it. A unique product or brand or cost structure. Strong leadership that knows how to allocate capital and align incentives for long-term growth, not just the next quarter’s earnings announcement. Leadership that can recognize and stay ahead of competitive threats and who can evolve their companies instead of falling victim to complacency.
As Pitt writes:
“You should understand why you own the securities that you own and you should want to own them. If you own a stock that you like, you stand a much better chance of holding that security through poor markets and tough economic periods. I own the companies I do because they are great companies and I genuinely like owning them.”
Patience
The most challenging aspect of building wealth is patience, which requires resisting the urge to act on short-term market fluctuations and the headlines du jour. Market cycles typically last around five years, and history shows that long-term investors who hold quality assets through wars, recessions, and crashes build significant wealth. Success comes from being “long-term greedy.”
The media likes to issue headlines such as: “If You Invested $10,000 in Amazon Stock 25 Years Ago…” – The Motley Fool
True, if you’d invested $10,000 in Amazon stock 25 years ago and held onto it no matter what happened, your position would be worth $627,000 as of the date of this article. While the article points out that Amazon isn’t the norm and many startups fail, it doesn’t point out the following: Amazon experienced three periods in the last 25 years in which its stock fell by 50% or more, including a decline of over 90% from December 1999 to October 2001.
As Pitt points out, “Some would argue that picking these stocks was just as difficult as holding them for an extended period. That’s true, but I’ll guarantee you that more people picked ‘em than held ‘em.”
Sensationalism will always sell and garner eyeballs, but it doesn’t build wealth. Investors who embrace Intelligence, Consistency, Quality, and Patience (ICQP) are better positioned to avoid being whipsawed by fear and greed. Markets will always fluctuate, but disciplined investors who follow these four principles stand the best chance of achieving lasting success.
We’ll close this section with what long-time Wall Street Journal columnist, Jonathan Clements, wrote in 2003 (“Nothing in the News is Actually New”): “What should investors do today? The answer: The same thing they should have done last year, and the year before that, and the year before that. Investors should focus on their financial goals, save diligently, diversify broadly, hold down investment costs, minimize taxes and rebalance regularly. Yet, if you pay too much attention to the news, it can be awfully tough to stick with these prudent strategies.”
The Big Tech/AI trade continues
The stock market continued to rally throughout the third quarter, hitting a series of new all-time highs and recording an overall gain of 7.8%. This puts the S&P up 14.8% year-to-date, and a far cry from the near-term low reached in the April sell-off. From that level, the S&P is now up 34.2%.
The 10 largest companies in the S&P 500 Index now account for 40% of the entire index, while the top 20 account for 50%. (Jaxson Simmerman on our team produced the tree map at the end of this letter which shows the top 20 companies and their weightings in the S&P 500.)
Of the 10 largest companies, nine are directly involved with or a beneficiary of artificial intelligence (AI), while the tenth, Berkshire Hathaway, holds large stakes in two AI-related companies (Apple and Amazon). As we pointed out in past epistles, market leadership is very narrow, which means there is less room for error.
The gains extended beyond just the large-cap segment of the markets. The Russell 2000, which measures the performance of 2,000 of the smallest stocks listed in the USA, hit its first all-time high since November 2021. For the quarter, small caps rallied by 12.02% and are now up 9.25% for 2025.
Foreign stocks, which had been the best performing cohort coming into the quarter, still managed to put in a gain in the past three months. The MSCI EAFE (developed market stocks) was up 4.2% in the third quarter. However, they remain the leaders year-to-date with a gain of 22.3%.
Interest rate cuts are back. The Federal Reserve trimmed their target rate by a quarter percentage point and there are expectations (currently) for two more 0.25% cuts by year-end. Lower interest rates could spur more economic activity as borrowing costs come down. More economic activity could lead to higher stock prices. Already we’ve seen the wealth effect from a rising stock market. The top 10% of U.S. households account for half of all consumer spending, and higher asset prices help to offset the impacts of inflation for the investor class.
On the more worrisome side of the ledger, investors have borrowed more money against their investment accounts through margin loans than at any point except for October 2021. Margin debt balances tend to be a contra-indicator. In other words, higher margin debt levels may mean more muted future returns. This also works in reverse, when margin debt levels are at low points, it often suggests market sentiment is depressed and due for a bounce.
While there are clear market cycles—typically identified in hindsight—trying to time these can be costly. As we pointed out above, ICQP is the way through market turbulence.
The “spend some money speech”
Many of our long-time clients can already guess what’s coming next. When markets have been strong for a while—and if it fits within your financial plan—spend some money. Take that trip. Make that gift. Do something that brings you joy.
Today, we serve more than 900 client households across 40+ states, and we’ve observed two common mental hurdles that nearly everyone faces. The first is finding the right balance between spending now and saving for the future. This challenge is relevant for those still in their working years. If you’d like confirmation that you’re on track, or a fresh perspective if adjustments are needed, please reach out to us.
The second hurdle tends to show up in retirement. Once the steady paychecks stop, many retirees find it difficult to create and stick to a spending plan. We’ve written before about “flipping the switch” and “creating a retirement paycheck,” and if that’s something you’d like help with, give us a call.
On behalf of the entire P&A team, thank you for being our client!
Jon J. Sevenker, CFP®
Senior Advisor/Principal
Dan Frost, CFA, CFP®
Senior Advisor & Portfolio Manager/Principal
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