T&V Letter | Q4 2025

Insight

In the late 1990s, enthusiasm for the internet led to pronounced excesses in US equity markets. eBay, for example, went public at USD 18 and was trading at around USD 640 just one year later. In hindsight, there is no doubt that the internet has fundamentally transformed the economy and society. The path to that transformation, however, was far from linear and was marked by phases of pronounced euphoria followed by corrections.

At the peak of the dotcom bubble, the ten largest stocks accounted for roughly 25% of the S&P 500. In the years that followed, this concentration declined significantly: after the bubble burst, the weight of the ten largest companies temporarily fell to around 17%. This was accompanied by a pronounced rotation away from the previously highly favoured internet and technology stocks toward other market segments.

Today, valuations in the S&P 500 are once again well above their historical average, although still clearly below the levels seen during the dotcom era. At the same time, the ten largest companies now account for around 41% of the index’s market capitalisation, reaching a historical high that is well above the level observed 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 give way to a reversion toward the mean. In the past, such environments were often accompanied by a relative recovery of fundamentally solid, previously overlooked quality companies.

Dear reader

For investors whose reference currencies are the Swiss franc or the euro, the market environment in 2025 was shaped to a significant extent by currency effects. The pronounced depreciation of the US dollar had a noticeable impact on the performance of international investments measured in local currency terms: the US dollar weakened by around 13% against the Swiss franc and by approximately 12% against the euro, significantly reducing nominal equity gains in many cases.

This development is not an isolated event, but rather an expression of a recurring pattern in financial markets. Markets have always been shaped by dominant narratives that influence how opportunities and risks are perceived. In the 1970s, it was stagflation that pushed energy stocks into the spotlight; in the 1980s, this was followed by the Japan boom. The 1990s were defined by enthusiasm for the internet, while in the 2000s China’s industrial rise directed global capital flows. Each of these phases had its own defining obsession, most clearly reflected in the largest companies of the time.

10 biggest companies by size for each decade — Figure 1: Top 10 companies by size for each decade

Regardless of the prevailing zeitgeist, all companies are subject to the same economic laws. As firms grow larger, their growth rates tend to slow, and only a small number manage to maintain a leading position over extended periods. Historically, very few companies have remained at the global forefront for more than a decade. Over time, size itself becomes a limiting factor, creating space for new players to emerge, often driven by the next dominant narrative.

The current narrative

The prevailing market narrative today is clear: artificial intelligence sits at the centre of investor attention. This theme is supported by related areas such as energy infrastructure, nuclear power, quantum computing, and rare earths. Together, these topics currently attract a substantial share 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 foundations.

A closer look at the performance of individual market segments illustrates this dynamic. In 2025, unprofitable companies were among the strongest performers. Even more pronounced were gains among firms with little or no meaningful revenue, particularly in areas such as nuclear fusion or quantum computing, which outperformed nearly all other groups. The common denominator is evident: artificial intelligence. While this theme is represented in our portfolios, our exposure to unprofitable companies remains deliberately very limited. Our focus is firmly on high-quality businesses.

The AI narrative is making quality cheaper

When markets temporarily drift away from fundamentals, even solid and profitable companies can come under pressure. This is not because their business models are deteriorating, but because investors reallocate capital toward more fashionable themes. This process, commonly referred to as rotation, can lead to periods in which the share price performance of quality companies becomes temporarily disconnected from their underlying operational development.

High-Quality Stocks Underperformance is at 1999 Extremes — Figure 2: The pronounced underperformance of quality stocks recalls 1999

Such trend-driven market phases, however, create conditions that Warren Buffett has famously described as the opportunity to buy a great company at a fair price. At present, many high-quality companies are trading at more than fair valuations — a market anomaly that historically has occurred only about once per decade (see Figure 2). At the same time, numerous mediocre companies are trading at exceptionally high valuations.

During the dotcom bubble, Warren Buffett’s investment vehicle temporarily suffered a drawdown of around 45%, while the Nasdaq index rose by approximately 290% over the same period.

Our conclusion

History does not repeat itself, but it often rhymes. Long-term investment success requires patience and a long-term perspective. Experience shows that the share prices of quality companies, supported by solid fundamentals, tend sooner or later to realign with their underlying operational reality.

As always, we thank you for the trust you have placed in us!

*This communication is for information purposes only and constitutes neither a personal recommendation nor an independent financial analysis.