Between Euphoria and Discipline
T&V Letter Q4 2025
2025 was a strong stock market year, characterized by AI, technology stocks, and high market concentration. Such phases offer opportunities but also demand discipline. The key remains to put developments into perspective, evaluate valuations, and not align portfolios with just a single trend.
Insight
AI is shaping the markets, but valuations and concentration warrant a sober look.
At the end of the 1990s, enthusiasm for the internet led to significant exaggerations on the US stock markets. For instance, eBay went public at 18 USD and was trading at around 640 USD a year later. In retrospect, there is no dispute that the internet has permanently changed the economy and society. However, the path to get there was not linear, but was characterized by phases of pronounced euphoria and subsequent corrections.
At the peak of the dot-com bubble, the ten largest stocks accounted for around 25% of the S&P 500. In the following years, this concentration decreased significantly: after the bubble burst, the weight of the ten largest companies fell at times to around 17%. This was accompanied by a pronounced rotation away from the previously highly sought-after internet and technology stocks toward other market segments.
Today, valuations in the S&P 500 are again significantly above their historical average, although clearly below the level of the dot-com bubble. At the same time, the ten largest companies account for around 41% of the index's market capitalization, thereby reaching an all-time high that is significantly above the level at the turn of the millennium.
Historical experience shows that phases of extreme market concentration in the S&P 500 are rarely permanent and tend to favor a reversion to the mean. In the past, such constellations were often accompanied by a relative catch-up of fundamentally solid, previously less noticed quality companies.
NEWSLETTER
Dear Reader
For investors in Swiss francs and the Eurozone, the market environment in 2025 was particularly shaped by currency effects. The significant depreciation of the US dollar had a noticeable impact on the performance of international investments measured in local currency: the US dollar lost around 13% against the Swiss franc and around 12% against the euro, which significantly offset nominal price gains in many places.
This development is not an isolated case, but rather an expression of a recurring pattern in the financial markets. Markets have always been shaped by dominant narratives that guide the perception of opportunities and risks. In the 1970s, it was stagflation that brought energy stocks into the spotlight, followed by the Japanese euphoria in the 1980s. The 1990s were characterized by the internet, while in the 2000s, China's industrial rise determined global capital flows. Each of these phases had its own obsession, which was reflected particularly clearly in the largest companies.
Regardless of the respective zeitgeist, all companies are subject to the same economic laws. As size increases, growth slows down, and only a few companies manage to maintain their top position over a longer period. Historically, hardly any company manages to remain at the global top for more than a decade. Over time, size itself becomes a limiting factor, creating space for new players carried by the next dominant narrative.
Today's narrative
The current market narrative is clear: Artificial Intelligence is at the center of attention. This topic is flanked by related areas such as energy infrastructure, nuclear energy, quantum computing, or rare earths. These themes currently capture a significant portion of investor interest.
The result is a market increasingly divided into two camps: on one side, companies clearly associated with these dominant themes, and on the other, a broad segment of firms that receive significantly less attention despite solid fundamental data.
A look at the performance of individual market segments illustrates this development. Unprofitable companies were among the strongest gainers in 2025. This is even more extreme for firms with no significant revenue, particularly in sectors like nuclear fusion or quantum computing, which outperformed almost all other groups. The common denominator is obvious: Artificial Intelligence. While this theme is present in our portfolios, the share of unprofitable companies deliberately remains very low. Our focus is clearly on high-quality companies.
The AI narrative makes quality more affordable
When markets move away from fundamentals, even solid and highly profitable companies temporarily come under pressure. Not because their business models are deteriorating, but because investors are reallocating capital to more sought-after themes. This process, known as rotation, causes the share price performance of quality companies to temporarily decouple from their operational development.
However, such trend-driven market phases create situations that Warren Buffett figuratively describes as buying a great company at a fair price. Currently, many high-quality companies are trading at more than fair valuations – a market anomaly that historically occurs only about once a decade (see figure). At the same time, numerous mediocre companies are trading at exceptionally high valuations.
During the dot-com bubble, Warren Buffett's investment vehicle temporarily recorded a loss of around 45 percent, while the Nasdaq index rose by about 290 percent over the same period.
Our conclusion
History does not repeat itself, but it does rhyme. Long-term investment success requires patience and a longer breath. Experience shows that sooner or later, the share price development of quality companies, supported by solid fundamentals, aligns once again with operational reality.
As always, thank you for your confidence in us!
*This communication is for informational purposes only and does not constitute a personal recommendation or an independent financial analysis.
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