WANTED: LOST PUPPIES (December 7, 2025): Whenever we are in the process of completing a major bubble peak for large-cap U.S. equities, as we had previously experienced in the years 1837, 1873, 1929, 1972, and 1999, investors crowd increasingly frenetically into the most popular favorites while progressively abandoning most other assets. It is not a coincidence that in recent years we had experienced the lowest prices, and thus the highest yields, for U.S. Treasuries going back to the early years of the century. We recently saw the most extreme ratios in history for most small- and mid-cap U.S. stocks relative to the biggest megacaps, with an all-time record concentration in the largest companies by market capitalization. We also had record undervaluations for emerging-market stocks near the beginning of 2025 relative to large U.S. stocks. It is possible that cryptocurrencies, private equity, and private credit have joined the group of disfavored assets and may have begun their own severe bear markets in recent months. As more and more investors have been crowding into fewer and fewer assets, many of those approached or achieved all-time overvaluations relative to their earnings either recently or earlier in 2025.
As an increasing number of stocks go out of favor during and after any bubble topping process, some of them become especially compelling for purchase.
An increasing number of stocks which are not among those lucky enough to be trendy have suffered multi-year bear markets. It is often true that the longer that a particular stock has been in a general downtrend, even if its current and future earnings are impressive, investors will become increasingly unwilling to wait for the price to rebound and will become more likely to sell it in order to put their money into the much-hyped favorites. As I had mentioned in my previous posting from November 23, 2025, this is especially true near the end of the year when many investors are looking for tax losses to offset their realized 2025 capital gains. Ironically, the biggest losers which can provide the largest tax losses are often the shares which have become the most undervalued relative to their earnings and are thus the most likely to rally sharply sooner or later.
I usually prefer to rely on top corporate executives to tell me when to buy and when to sell.
You can learn a lot from carefully studying earnings reports and official government filings. You can learn more by visiting a company and speaking with the top executives, as Peter Lynch had famously done to an impressive extent. However, I think the most useful way to gauge whether a particular company's stock is really worth buying is when top executives of that company have recently been purchasing their own shares, especially if the same executives have previously bought low and sold high. Whenever a particular sector has gone sharply out of favor, as chemical shares and some other groups have recently done, I look for those in those unpopular sectors where insiders have been the most aggressive.
UTZ has recently fallen to a multi-year bottom accompanied by several top executives making purchases.
When I was growing up in northwest Baltimore we often greeted the drivers of the Utz trucks who delivered snacks to the schools I had attended. This company remains important regionally and has been doing test marketing in more distant places including California as they are considering becoming a national brand. Their earnings are temporarily lower through the extra expense from leaving their home turf, while they have been prudently expanding with sustainable discount pricing. I have been continuing to buy shares in recent weeks as the price has fluctuated near its recent lows.
ALIT, ENR, CNS, WDFC, BBWI, and FISV have all been trading near multi-year lows accompanied by insider buying.
As a general principle, I prefer to purchase assets which are trading near or below half fair value while selling short assets which are trading at triple or quadruple fair value. This is especially true when most investors have been doing the opposite, feeling more comfortable owning the dangerously overvalued shares which have been the biggest winners during the past three years while unloading the biggest losers over a similar time period.
I increase risk gradually using ladders of good-until-canceled orders, because there is no way to gauge the timing or extent of any extreme.
All assets eventually regress toward the mean and beyond, a principle which has been true for centuries. However, in spite of all kinds of mystical attempts to gauge the extremes of timing or price, it is inherently impossible to do so. I will gradually increase risk into pullbacks, especially when these shares appear to be forming several higher lows, and will be especially cautious not to become too heavily committed to any individual stock. By spreading out the risk among a group of compelling assets, eventually you will come out well ahead of inflation.
Some U.S. Treasuries and TIPS had recently sported some of their highest yields in some cases since 2001.
For reasons which are unclear, 30-year TIPS, which are U.S. government guaranteed inflation-protected securities, had climbed to their highest yields since 2001. In recent months these yields had somewhat retreated, while recently not reaching their extremes from earlier in 2025 but still being very compelling. I have therefore been purchasing these and related TIPS of 25 years and more to maturity in the secondary market. This is a fancy way of saying that I have been buying used long-term TIPS, rather than new ones which are sold at auction. Other funds of U.S. Treasuries and TIPS, including TLT, EDV, and LTPZ, have been trading with impressively high yields while forming numerous higher lows since their respective bottoms. TLT has made numerous higher lows since October 2023, and continues to be highly unpopular. Hedge funds in particular have become aggressive short sellers of TLT as they had previously done with emerging-market shares in early 2025 and Chinese stocks in the summer of 2024, before both of those enjoyed dramatic percentage gains:
The investment industry is excellent at massively increasing the supply of popular basket products which are available to the average investor near each important U.S. stock-market peak.
In the late 1920s and especially during 1929 we had a massive increase in the number of closed-end stock mutual funds which the average investor could purchase in order to buy baskets of stocks instead of individual shares. A handful of the best-run funds in that category including ADX, CET, and TY still exist today, while hundreds of them went out of existence during the crushing bear market which followed. There was a similar explosion of open-end mutual funds in the early 1970s, especially in 1972, which similarly became extremely popular just before the 1973-1974 collapse in their values. After that we had the introduction of the earliest exchange-traded funds, mostly broad-based index funds including SPY and QQQ, which skyrocketed in popularity in 1999-2000 just in time for the most severe bear market since 1974.
Recently there has been a nearly vertical increase in the number of exchange-traded funds which are listed in the U.S., including a massive rise in the number of leveraged long ETFs:
We are likely to continue to experience additional bargains between now and the end of 2025 as the final weeks of tax-loss selling encourage some of the most oversold shares to temporarily become even cheaper.
Let me know if you believe you have identified some worthwhile bargains where stocks are trading not far above multi-year lows, top corporate executives have been buying, and where current and future earnings will likely be impressive. Especially if these stocks are in sectors which have gone out of favor or have simply been forgotten due to the AI bubble, some of these are likely to significantly outperform roughly in proportion to how deeply they are trading below their respective fair value levels.
A small minority of brokers and analysts have been intelligently warning us of the dangers of overcrowding into the most popular megacap U.S. stocks, just as has always been and always will be the case during any especially elevated market topping process.
Vanguard deserves credit for warning investors that they should have roughly 70% of their assets in the safest bonds including U.S. Treasuries and TIPS, and 30% in a widely diversified group of stocks, which is roughly the opposite of their usual recommended allocation. Because it has been just over three years since the October 2022 U.S. stock market bottom, many investors have foolishly concluded that everything will be sunshine and chocolate cookies from now on. We haven't had a severe bear market since early March 2009 which has created the impression that bear markets were something our parents had to deal with but won't happen during our lifetimes. Investors shared similar dangerous delusions at each of the five previous U.S. stock market bubbles, with almost identical results each time. We can debate whether funds like QQQ will drop 80% or 90% over the next few years, but those who are holding on for the long run will likely end up behind even after decades. Those who didn't sell the equivalent of the S&P 500 Index at the September 1929 top ended up behind by 38% in real terms (i.e., adjusted for inflation) by August 1982, almost 53 years later, while those who owned a similar basket of stocks in June 1851 were behind in real terms more than 81 years later in June 1932:
Instead of following Vanguard's lead and increasing safety, the percentage of investors' allocation to bonds has fallen under 20% and currently is not far above its low levels from both the 2007 and 1999-2000 stock market peaks:
Disclosure of current holdings:
Below is my current asset allocation as of 4:00 p.m. on Friday, December 5, 2025. Each position is listed as its percentage of my total liquid net worth.
I extracted the totals for each position and grouped these according to sector.
The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) emerging-market funds; 6) individual Brazilian ADRs; 7) energy; 8) other individual shares.
VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 35.33%;
17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10,30-Year TIPS/4-Week/6-Week/20-Year: 26.81%;
TLT long: 12.29%;
I Bonds long: 4.05%;
LTPZ long: 0.92%;
EDV long: 0.76%;
PMM long: 0.01%;
XLK short: 33.81%;
QQQ short: 25.76%;
GDXJ short: 2.15%;
SMH short: 1.48%;
GDX short: 0.44%;
AAPL short: 0.16%;
PSQ long: 3.62%;
SARK long: 0.31%;
Gold/silver/platinum coins: 12.04%;
PALL long: 3.17%;
FLBR long: 0.76%;
EWZ long: 0.72%;
EWY long: 0.23%;
FLKR long: 0.17%;
TUR long: 0.03%;
EWZS long: 0.02%;
UGP long: 0.55%;
VALE long: 0.40%;
GGB long: 0.20%;
BBD long: 0.17%;
RIG long: 0.66%;
WTI long: 0.10%;
PTEN long: 0.03%;
MOH long: 1.17%;
LYB long: 0.71%;
HUN long: 0.62%;
CAG long: 0.50%;
VAC long: 0.43%;
UTZ long: 0.41%;
SG long: 0.36%;
ALIT long: 0.27%;
OGN long: 0.24%;
FXY long: 0.04%;
CLF long: 0.01%.
