"But just months later, swept up in the wild enthusiasm of the market, [Sir Isaac] Newton jumped back in at a much higher price and lost £20,000 (or more than $3 million in today’s money)." --Benjamin Graham

REVERBERANT REVERSALS (February 8, 2026): We have become conditioned by society to want to "turn over a new leaf" each time we approach and enter a new calendar year. We join a gym pretending we will exercise frequently for the entire year; we close out losing positions which have been the most disappointing performers and are set to enjoy powerful rebounds, in order to not have to look at big red negative numbers each time we log into our accounts; we assume that the previous calendar year's trends will continue indefinitely. As a result, whenever I possess shares which used to enjoy insider buying but have recently experienced notable insider selling, while the media have become far more optimistic and brokerages have been making frequent upgrades, I may be tempted to sell such holdings near the end of any given calendar year. Instead, I usually wait until part of January has passed before doing so, giving investors enough time to pile into the previous year's biggest winners. I have been selling some shares which I had bought from October through December 2025 that had been wildly oversold due to their becoming tax-loss favorites, if they have rebounded sufficiently so they are no longer meaningfully undervalued and previous top executive buyers in the autumn have become recent sellers. The start of 2026 fits classically into this pattern, combined with unusually priced large-cap U.S. stocks similar to how the year began in 1973 but generally with even more dangerous overpricings of stock prices relative to their earnings.

I have been aggressively increasing my allocations to TLT and PSQ, although using small amounts per trade as I always do whenever I am increasing risk.

TLT is one of the least-appreciated and most-shorted funds in history. Hedge funds in particular have multiplied their net short position by a factor of about twelve, and all of this increase was done after TLT had already completed its bottom at 81.92 at 5:40 a.m. in the pre-market session on October 23, 2023:

TLT has been in a very unappreciated bull market for 27-1/2 months and yields 4.82% annualized.

We'll leave aside the obvious question about why anyone would want to sell short something with an annualized yield of 4.82% which has been in a bull market for 27-1/2 months, choppily forming numerous higher lows along the way. The media have been insisting for months that the U.S. dollar will collapse and will allegedly no longer serve as the world's reserve currency. Meanwhile, the reality is that the U.S. dollar keeps rapidly rebounding from all selloffs since July 1, 2025, with the sharpest selloffs leading to the strongest recoveries. The media also keep insisting that long-term U.S. Treasury yields will surge higher. The truth is that it is the strong gains in large-cap U.S. stocks, in no way justified by their earnings climbing far more slowly than their stock prices, which has encouraged investors to foolishly conclude that they will always be able to get a 20% or 30% gain in large-cap U.S. shares. if you are sure you will achieve such outsized profits from U.S. stocks, then you will have zero interest in investing in something conservative and guaranteed like the TIPS which mature on February 15, 2053 with a fixed yield of 2.64% which is added each month to the urban CPI for a current total yield near 5-1/4 percent.

PSQ is an unleveraged fund which tracks the inverse of QQQ. QQQ remains one of the most overvalued exchange-traded funds in history and is also one of the most popular exchange-traded funds.

Buying PSQ is like shorting QQQ, except that you have to pay the 0.95% management fee and you can't sell covered puts against it as you can with QQQ. You can own PSQ in a retirement account where short selling is not permitted, and if you own it in a non-retirement account then it will qualify for long-term capital gains if you hold it for at least one year and one day from your purchase date for any lot. Investors have been piling into leveraged long funds of most equity groups, while they have fled from bear funds whether they are leveraged or unleveraged. Any extended uptrend creates the psychological perception that it will continue indefinitely, and since we haven't experienced a true U.S. equity bear market since early March 2009 which was almost 17 years ago, many people can't emotionally imagine a similar percentage decline occurring soon.

Top corporate insiders have been selling their shares at an all-time record pace, along with other very experienced investors including Warren Buffett. The same very experienced investors have been making all-time record investments into "boring" U.S. government debt. Meanwhile, the least-experienced investors have been making by far their biggest-ever inflows into stock funds and have been shunning safe guaranteed investments of all kinds. You can ask yourself whether the most experienced investors will be proven right, as has always occurred throughout history, or whether this will be the first time that the least-experienced participants end up with the biggest gains.

I sold many of the shares I had purchased throughout 2025, primarily emerging markets and energy shares in January and April and tax-loss favorites in October through December.

I sold all of the energy shares I had bought in April 2025, especially RIG, WTI, and PTEN. Fortunately most of these shares had more than doubled in value. I also sold all of my Brazilian, South Korean, Turkish, and other emerging-market shares which I had purchased primarily in January for Brazil and in both January and April for several other countries including South Korea. The South Korean shares more than doubled, while the Brazilian shares including both exchange-traded funds and individual company shares had gained an average of between 60% and 75%. While additional gains are possible for emerging markets and energy shares, I believe that the easy money has mostly been made while the downside risks have increased proportionate to their percentage gains.

I sold all of my PALL and MOH and a few smaller positions especially when brokerages switched from downgrades to upgrades while top corporate insiders changed from aggressive buyers to sellers.

MOH had gained 44% from my average purchase price in just over two months and the media had become far more favorable toward its future prospects, so I sold all of it. PALL, a fund of physical palladium, was an exchange-traded fund which I began purchasing near the end of 2023 and kept buying into the spring of 2025 within a few dollars of 80. In the futures markets, commercials--those who actually use palladium for manufacturing or mine palladium themselves--built up a long position which was more than ten times their short position. This is one of the most lopsided ratios for any futures contract in history. Recently, commercials shifted dramatically to being short:long 3:2. Palladium went from being one of the most popular short positions for hedge funds to a recent net long hedge fund favorite. I therefore sold all of my PALL even though it hadn't quite reached my target. The average gain was about 125% (not annualized).

Many popular assets experienced intensified upward moves followed by downside reversals.

You probably already know how nearly all cryptocurrencies accelerated their uptrends during the summer of 2025, and afterward reversed so dramatically that they have mostly lost more than half of their previous peak valuations. The same will occur with many other asset classes. Large-cap U.S. stocks, including funds like QQQ, SPY, and VOO, will similarly lose more than half of their value over the next few years. The degree of the decline will be proportional to the percentage of very overpriced shares they own in their portfolios. During the collapse of the internet bubble, QQQ lost 83.6% of its peak valuation in exactly 31 months if you adjust for all reinvested dividends. A similar or greater percentage decline for this and similar funds is likely by 2029 or sooner.

We have experienced sharp upward bounces for the most overvalued stocks, with the sharpest surges higher often occurring near the opening bell. This is highly characteristic of U.S. equity bear markets and almost never happens during bull markets.

Investors during the early years of bear markets repeatedly conclude that "the bottom is in" and excitedly pile in numerous times, ultimately being disappointed at not achieving new all-time highs which had become routine in recent years. This is especially true of the most severe bear market years including 1931, 1974, 2002, and 2008, which featured far more frequent sharp up days than the strongest bull market years including 2013 and 2017. Mark Hulbert has done extensive research into this phenomenon. Friday, February 6, 2026 was a classic short-term upward spike.

Prior to a large percentage drop for the U.S. stock market, VIX will almost always form a sequence of numerous higher lows following a historic bottoming pattern.

While the S&P 500 during the previous severe bear market had peaked on October 11, 2007 and bottomed on March 6, 2009, VIX had actually bottomed several months earlier in December 2006 and peaked in October 2008. VIX is likely forming a similar pattern in recent months, sliding to 13.38 on December 24, 2025 which had marked its lowest point in over a year. Whenever VIX reaches an especially elevated level, perhaps during the final months of 2026, and then begins to form several lower highs, it will likely be followed by a multi-month recovery for large-cap U.S. stocks before they resume their multi-year bear markets.

There will continue to periodically be worthwhile purchases for unloved shares with brokerage downgrades and insider buying.

My favorite stocks for purchase in any environment are those where the top executives including the CEO are buying into all extended pullbacks, where brokerages have been downgrading their prospects, where the media have become persistently gloomy, with single-digit price-earnings ratios, and with above-average long-term annualized earnings growth. If this sounds like something that Benjamin Graham or Peter Lynch would have said decades ago then that is not a coincidence.

Expect far more dramatic intraday fluctuations over the next few years than we have experienced during the past few years.

The financial markets have become much more volatile since October 2025 than they had been for several previous months, with generally larger spreads between intraday highs and lows. This is typical of a transition from the final stages of a lengthy equity bull market to a classically severe equity bear market. Often the early part of any trading day, especially near the opening bell, will experience sharp gains which are followed by pullbacks later in the day. The most popular shares will often be among the most eager to move higher in the morning. Whenever we are approaching the next intermediate-term bottoming pattern, perhaps several months from now, we will see roughly opposite behavior with frequent downward spikes near the opening bell followed by multiple rebound attempts as they day progresses.

February 2026 has been even more volatile than January in both directions for many assets.

Last week was a classic example of intensified intraday swings which characterize all transitions to true U.S. equity bear markets. QQQ rallied to a Tuesday, February 3, 2026 peak of 630.54 at 2:58 a.m., not far below its all-time top of 638.94 at 11:49:13 p.m. on October 29, 2025, before sliding to a Thursday, February 5, 2026 bottom of 587.44 at 7:16 p.m. and rebounding sharply since then. In case you aren't accustomed to readings outside of regular trading hours, such activity has become increasingly common and increasingly extreme and will likely continue to do so for at least the next several years.

The following charts highlight the incredible unsustainable extremes of the first several weeks of 2026 which will be remembered as one of the most unusually lopsided inflection months in world financial history.

The price-to-sales ratio of 3.43 for the S&P 500 one month ago, which was already surpassed several times in recent weeks, was far above its peak of 2.30 from the 1999-2000 internet bubble and thus probably has further to drop in a bear market:

There is a popular myth that high-P/E shares gain more in annualized terms than low-P/E shares, but the opposite has been proven to be true for decades:

Commodities retested all-time lows relative to U.S. equities during the past several years. Commodities have since rebounded moderately, especially during the past year, and are likely to surrender most of their recent gains before resuming their uptrend into the 2030s:

Precious metals have become unusually overpriced relative to energy commodities:

Investors consistently make the most intense net inflows near market tops and the most dramatic outflows near market bottoms:

U.S. corporate bond yields have been trading at spreads relative to U.S. Treasuries of similar maturities that are among their lowest in history:

There is a clear correlation between the extent of overvaluation and subsequent underperformance of U.S. stocks:

The media often assume that Fed rate cuts are bullish for U.S. stocks, whereas history proves that they are far more often bearish:

Rolling 3-month net inflows into U.S. exchange-traded equity funds are consistently their highest just before the biggest percentage pullbacks in those funds:

U.S. stocks overall are among their most overvalued ever recorded by several fundamental measures:

The out- or underperformance of U.S. stocks is inversely proportional to the percentage of total U.S. assets that are invested in the U.S. stock market:

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, February 6, 2026. Each position is listed as its percentage of my total liquid net worth. The long positions should add up to 100%, while the short positions all use U.S. Treasury bills as collateral.

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) individual U.S.-listed stocks; 6) currencies.

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: 25.50%;

VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 25.12%;

TLT long: 13.07%;

I Bonds long: 3.97%;

LTPZ long: 1.38%;

EDV long: 1.31%;

PMM long: 0.01%;

XLK short: 32.88%;

QQQ short: 25.35%;

GDXJ short: 2.42%;

SMH short: 1.55%;

GDX short: 0.53%;

PSQ long: 6.22%;

Gold/silver/platinum coins: 13.51%;

WEN long: 1.31%;

UTZ long: 1.20%;

HUN long: 1.04%;

LYB long: 0.86%;

SG long: 0.83%;

OXM long: 0.75%;

CAG long: 0.52%;

VIRC long: 0.50%;

AVTR long: 0.49%;

VAC long: 0.45%;

BLMN long: 0.34%;

FMC long: 0.30%;

ALIT long: 0.29%;

OGN long: 0.28%;

MOS long: 0.27%;

DEI long: 0.26%;

FISV long: 0.17%;

FXY long: 0.05%.

"Risk comes from not knowing what you're doing." --Warren Buffett

RISKS WITHOUT REWARDS (September 29, 2024): In this U.S. Presidential year, far too many investors have been acting like seals and not the Presidential kind. They have become so accustomed to repeating the same tricks, piling over and over again into funds of U.S. large-cap stocks, that they aren't considering the risks they are taking relative to the rewards. You can get away with this kind of mindless approach with assets which are undervalued, since undervalued assets regardless of their so-called "reasons" will eventually rebound to fair value and you will do reasonably well. However, whenever assets are at or near the highest ends of their historical ranges, especially when they are wildly popular and overowned, you are going to come out behind even after decades of faithful Boglehead behavior.

It is time for investors to stop pretending that they have a divine right to come out ahead by brainlessly buying dangerously overvalued assets. By the time they realize their mistakes, they will lose half of their money or more. They should instead be primarily invested in U.S. government debt including U.S. Treasuries, I Bonds, and TIPS. Those who own "boring" U.S. government debt will have just about exactly 117 dollars near the end of 2027 for every 100 dollars that they have now. Those who are too lopsidedly invested in the shares of large U.S. companies, many of which are trading at four, five, or six times their historical average levels relative to profits, sales, and book value, will be far behind "boring" U.S. Treasury investors. This will be true not only three or four years from now, during which time the biggest losses will likely occur, but even thirty or forty years from now. This is proven by the historical record following previous bubble peaks which I will now describe in detail.

The Boglehead myth has recently been more thoroughly researched and decisively debunked.

If you invest in anything when it is underpriced then you have the wind at your back. The long-term upward trend will eventually work in your favor. However, if you buy something which is at the 99th or 100th percentile of overvaluation then you will be behind in real terms even after several decades. Edward McQuarrie researched the entire history of the U.S. stock market dating all the way back to 1793 to determine whether U.S. Treasuries or U.S. stocks achieve greater returns, and discovered that their total long-term performance has been nearly identical:

In the Long Run, Stocks Outperform Bonds, or Do They?

The best-known modern period of severe underperformance by U.S. equities had occurred from the September 1929 stock-market top to the August 1982 bottom. During this interval of nearly 53 years, the S&P 500 lost 38 percent after adjusting for inflation:

If this is backdated further to the previous century, then the period from June 30, 1851 through June 30, 1932 was accompanied by a 21% net loss for U.S. stocks in real terms during this 81-year span:

Of course you can also select numerous periods of time when the S&P 500 Index has impressively outperformed, especially if you begin from a starting point of notable undervaluation. Where you end is a function primarily of where you begin, not which asset you own. There is no magic which will cause you to "always be ahead in the long run," which is one of the most irrational and misguided conceits of Boglehead investors. Since we only live to be 100 years old or less, rather than 10 thousand years, it very much matters where we are in the cycle.

We are either at or near the 99th to 100th percentile for many U.S. equity valuation measures.

U.S. stocks, especially large-cap shares which have been by far the most popular with investors, have never been more overpriced in their entire history relative to current and future earnings than they have been during 2024 according to most reliable measures of valuation. Here are two charts which highlight their dangerous current levels:

The CNN Fear & Greed Index has rarely reached or exceeded 72 in its entire history:

The most important executive orders are the all-time record insider sales by the highest-ranking officers of U.S. companies.

In 2024 we have experienced all-time record insider selling by the top executives of large U.S. companies. This is not a coincidence; those who know the most about valuations and future profits are well aware that their companies' shares have never been more overpriced and will likely never be as overpriced again in their lifetimes and probably not in their children's lifetimes. That is why the total U.S. dollar volume of such selling is roughly twice the previous all-time record and is far above the average level of selling. Top executives have also done the least U.S. dollar volume of total insider buying in history during 2024:

Corporate Insiders Are Dumping Stock at the Fastest Rate in More Than a Decade

More aggressive investors who are aware of current record overvaluations, and who understand the risks they are taking, may choose to sell short.

It is possible to sell short assets which are at a high multiple of fair value including QQQ, or to purchase bear funds which do this including PSQ if you are less comfortable with short selling. It is essential to understand the potential risks and rewards with any kind of investment before taking such action. In addition, whenever you establish any position, you should always begin with a tiny percentage of your total liquid net worth and only add 125 dollars per trade for every one million dollars of your total liquid net worth. Many investors dangerously overtrade by doing amounts which are far too large, which will almost always give you a mathematically inferior average price.

Unlike long positions where you must surrender your U.S. Treasury bills to purchase those longs, short sellers can hold their Treasuries as collateral which will count almost as much as cash. You will also be paying the lowest dividends in history.

One little-appreciated advantage of selling short is that if you establish any long position then you have to give up the U.S. Treasury interest to make such a purchase. If you buy SPY, for example, then you are giving up 4.75% which you could get on 4- or 8-week U.S. Treasury bills, or similar yields on funds such as the Vanguard Federal Money Market Fund VMFXX, to get 1.18% in dividends which is the current 30-day SEC yield for SPY. It makes no sense to surrender 3.5%, because then you have to make 3.5% in capital gains just to break even, and that's not counting the fact that U.S. government debt is free of state and local income tax. If you are selling short and you use U.S. Treasury bills as your collateral, then those will count as 94% cash positions by SEC regulations. In other words, having 100 thousand dollars in U.S. Treasuries has the same marginable value as 94 thousand dollars in cash. You will thus be able to continue to collect interest so that if nothing happens in one year you will come out ahead compared with those who have long positions in the same securities. Since the SEC dividend yield for QQQ is 0.58% while short-term U.S. Treasury bills are yielding a blended average of 4.58%, the annualized net increase in your account per year will be exactly 4% if you are short QQQ and its components are unchanged in value.

U.S. Treasuries overall in October 2023 sported their highest yields since 2000. It makes much more sense to purchase assets which are at 23-year lows than to buy shares which have never been more overpriced since the beginning of the U.S. stock and Treasury markets in the late 1700s. Current U.S. Treasury yields have declined moderately from their 2023 peaks but remain well above their long-term historic averages. Investors have been shunning a guaranteed 4% to 5% annualized since, just as had been the case at previous bubble peaks including 1929, 1972, and 1999, they are overconfident about gaining 20% or more each year with large-cap U.S. stocks.

The behavior of the U.S. dollar index has been ignored by most investors even though it has been one of the most consistently reliable signals since it began trading at the start of 1972.

Only a small percentage of investors track the behavior of either the U.S. dollar index or the greenback relative to other global currencies. Historically the U.S. dollar tends to complete important peaks and thereafter make lower highs whenever U.S. stocks are set for significant uptrends, as we had most recently experienced when the U.S. dollar index completed a two-decade peak on September 26, 2022 and on earlier occasions before stock-market surges such as March 4, 2009 which was two days before the S&P 500 had ended its bear market on March 6, 2009 at 666.79. Symmetrically, the U.S. dollar index will often bottom and begin to form higher lows whenever U.S. equities are set for meaningful declines, as we had seen on numerous occasions including the important double bottom for the greenback in March and July 2008.

During the past several years the U.S. dollar completed a historic bottoming pattern in early 2021 before rallying to its highest point in more than two decades on September 26, 2022. This was followed by a two-year correction which either just ended or is approaching its final downward intraday spikes. There is no guarantee that the U.S. dollar can't drop further, but I expect to see it powerfully rally to its highest point since 1985 by 2027 or 2028. The next several months should also be accompanied by a generally rising U.S. dollar which will imply significantly lower prices for almost all other assets except for U.S. government debt.

Investors and most analysts have recently become as aggressively bullish toward gold and silver and the shares of their producers as they had been equally and staunchly bearish two years ago.

Investors consistently want to buy high and sell low, and this tends to be even more true in the precious metals sector where important tops and bottoms occur more frequently than they do for U.S. equity indices. Fortunately, just as with insider buying and selling, the U.S. government requires those who trade actual metals such as gold, silver, and platinum to register either as commercials, non-commercials, or small speculators. Commercials are those who own physical metal including miners, jewelers, and those who produce finished products from these metals. Non-commercials are hedge funds and others who manage money for other people. Small speculators are ordinary investors.

Commercials have rarely been more bearish toward gold, silver, and platinum than they are right now, only favoring palladium.

Historically, commercials gradually go net long whenever a particular asset is most likely to rise in price, and to gradually go net short whenever anything is most likely to decline in price. Not coincidentally, this trading approach is almost identical to my own method, partly since I based it upon long-term insider and commercial behavior. Recently the ratios of commercial short to commercial long positions for gold, silver, and platinum are near the highest-ever extremes of their multi-decade activity, meaning that those who are the most knowledgeable about precious metals are the most concerned about upcoming price declines and have been intensively hedging their inventory. This stands in stark contrast to most analysts and the media who have recently been especially bullish.

You can find the traders' commitments for silver, copper, and gold at the following link where it is updated each Friday at 3:30 p.m. Eastern Time:

U.S. Government Traders' Commitments for Silver, Copper, Gold, and Others

Here are the traders' commitments for palladium and platinum:

U.S. Government Traders' Commitments for Palladium, Platinum, and Energy

With gold, commercials were most recently long 76,713 and short 416,419 contracts. Silver commercials showed 29,339 longs and 111,171 shorts, while platinum commercials had been long 15,715 and short 45,255. Palladium commercials were long 10,572 and short 3,941, the only one of the four precious metals with a high long-to-short ratio rather than the other way around.

To a somewhat lesser extent than we have experienced with insiders for large-cap U.S. stocks which have sold about twice as much as their previous all-time records, the executives of gold mining and silver mining companies have been recently selling gold mining and silver mining shares at their most aggressive pace since August 2020.

Just during the past several weeks we had insider sales for Royal Gold (RGLD) numerous times, in addition to Newmont Mining (NEM), Hecla Mining (HL) earlier in September 2024, and Apex Silver Mines (APXSQ). In spite of gold frequently achieving all-time highs, the shares of mining companies have been repeatedly struggling to surpass their recent highs and are far below their peaks from the summer of 2020 when gold was more than five hundred U.S. dollars per troy ounce lower than it is now. We have also experienced more frequent intraday highs occurring near the opening bell which is consistent with a topping pattern.

The bottom line: Investors are far too heavily laden with low net dividends and high downside risk for popular large-cap U.S. equity favorites when they should be embracing U.S. Treasuries which yield 4% more with zero risk and no state or local income taxes. Cryptocurrencies remain irrationally popular in spite of having been in downtrends for more than a half year and having no proven long-term intrinsic value. Real estate is eagerly desired for the precise reason that it should be avoided since valuations are roughly double fair value in the U.S. and had reached triple fair value in Canada before modest declines in real terms during the past 2-1/2 years. Gold and silver have thousands of years of proven intrinsic value, but these and the shares of their producers have become perilously trendy in recent months primarily because "they're going up so don't miss out." Commercials and top corporate insiders have rarely been more bearish toward precious metals except for palladium since their euphoric peaks in January 1980. If you are able to handle the uncertainty of selling short QQQ or buying PSQ then this can be a worthwhile speculation, while the vast majority of your total liquid net worth should be invested in U.S. government debt until valuations eventually become more compelling elsewhere.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, September 27, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact 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) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.56%;

17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long/20-Year: 23.48%;

TLT long: 11.54%;

I Bonds long: 11.23%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.66%;

QQQ short: 24.50%;

SMH short: 1.53%;

AAPL short: 0.15%;

GDXJ short: 0.11%;

SARK long: 0.83%;

PSQ long: 0.04%;

PALL long: 1.44%;

Gold/silver/platinum coins: 7.64%;

FXY long: 0.72%.

"Most of the change we think we see in life is due to truths being in and out of favor." --Robert Lee Frost

BUSTING HEDGE FUNDS (December 17, 2023): I had worked at Thomson Reuters for 16-1/2 years; the person sitting next to me had the responsibility of tracking hedge funds and reporting on their behavior. After doing this job for a couple of decades, he pointed out to me how the vast majority of hedge funds which had shown little correlation in their investing behavior through the early 1990s had become increasingly alike by the second decade of this century. The proliferation of hedge-fund conferences where they discussed their "best ideas," combined with nearly identical computer algorithms and momentum strategies becoming increasingly much more popular, almost totally displaced former tendencies toward value investing and identifying compelling bargains.

Although there remain key exceptions including money managed by Seth Klarman, Marc Faber, Jim Rogers, Howard Marks, Ray Dalio, and some others where it is unlikely that you will be able to have them handle your accounts, more than 90% of hedge funds are crowding into identical concepts at any given time. This herd following is especially prevalent at key extremes and has almost certainly caused many of those extremes to become much more exaggerated than they would have been if they hadn't existed. It is also increasingly the case that hedge funds as a group are doing almost exactly the opposite of top corporate insiders and commercials. Thus, tracking insider behavior and the traders' commitments has demonstrated repeated multi-decade extremes where the insiders and commercials are heavily on one side while hedge funds have been piling even more aggressively the other way.

Doing the same as insiders and commercials and the opposite of hedge funds has become an increasingly available and profitable investing strategy which I have been doing more consistently as the 21st century has progressed.

As a result, the most consistently successful strategy in the 21st century has been to do whatever the insiders and commercials are doing at any rare extreme, while going against the hedge funds. During the past year we have already seen several examples of this behavior with hedge funds establishing an all-time record short position in U.S. Treasuries in October 2023. This was followed by the biggest Treasury rally in four decades which intensified during the past week as hedge funds rushed to close out their shorts ahead of all the other hedge funds, and were not particularly successful in doing so. TLT had traded at 81.92 in the pre-market session on October 23, 2022, and less than two months later was trading above 99.

Hedge funds piling into the AI bubble is their latest extremely overcrowded trade, while the top corporate insiders of these companies have done all-time record selling of their shares.

The latest overcrowding by hedge funds has been in being long AI stocks. While most U.S. and global stocks and their funds including IWM have been in bear markets since they had topped out in November 2021, funds which are concentrated in the biggest and most popular megacaps which have generated the most investor excitement in this year's AI bubble have dramatically outperformed in spite of their unimpressive profit growth. QQQ has almost regained its all-time top, while XLK and SMH are among those funds which have experienced the greatest percentage gains during the past year and have achieved new record highs. The top insiders of these companies have never sold more aggressively than they have done during the past few years, while the only time hedge funds had been more committed to any concept was when they had been massively short U.S. Treasuries in October 2023.

This chart, just updated, highlights the amazing recent overcrowding by hedge funds into QQQ and Nasdaq 100 futures which has achieved an overwhelmingly lopsided extreme by a large factor even when compared with 2021 or 2022:

Less historically extreme but still massive overcrowding has created other 2023 situations ripe for busting.

Hedge funds, as is evidenced by the official exchange data at cftc.gov, had never demonstrated a higher ratio of shorts to longs for palladium, thereby leading to PALL plummeting to 85.25 at 12:06 p.m. on December 5, 2023. Since then it has rebounded above 100. Hedge funds piled massively into gold on Sunday evening, December 3, 2023 to reach a spot price of 2137.50 U.S. dollars per troy ounce for the first time in history. Given how hedge fund crowding leads to huge reversals, gold bullion is likely to drop to around 1750 during the next several months before enjoying its next strong rally. The traders' commitments for gold as of December 5, 2023 showed commercials (who are those that own physical gold, such as miners, jewelers, and fabricators) long 103,193 contracts and short 330,138 which is more than 3:1 short to long. Not surprisingly, almost all of those on the other side of this trade were hedge funds and related managed money organizations which the commodity exchange calls "large speculators."

Silver's commitments the same week showed commercials long 40,974 and short 92,988 which was clearly also bearish for silver. Hedge funds were thus aggressively long gold and silver and even more aggressively short palladium. Palladium commercials that week were long 12,814 and short 1,537 which is more than 8:1 long to short.

Hedge funds had done all-time record crowding into shorting the Japanese yen, enabling the yen to fall to its lowest point since July-August 1990. Since then the yen, which trades as an exchange-traded fund via FXY, has experienced its strongest short-term rebound since the Bretton Woods agreement was terminated over a half century ago.

Hedge funds formed a lesser bubble by massively overcrowding into energy commodities and their shares two months ago.

Several times since November 2022 including around the middle of September 2023, hedge funds massively crowded into anything relating to energy while energy insiders sold shares at their most intense pace ever recorded. This was an especially notable reversal for top energy executives who in 2020 were their most aggressive in buying their own shares in their entire history. Starting on September 14, 2023, when XLE reached an all-time dividend-adjusted zenith of 93.685, energy shares and their funds including XLE have been among the biggest losers of all unleveraged exchange-traded funds in any sector.

The media often encourage ordinary investors to do as the hedge funds are doing, which is not surprising since they get a lot of their information from hedge funds which are naturally trying to get others to follow whatever will benefit their own portfolios.

Why have the media suddenly been talking about a "Fed pivot?" It's not because financial journalists have suddenly discovered how to interpret whatever the Fed has been doing. It is because they receive a lot of their data and even more of their interpretation of that data from hedge funds which naturally want to get retail investors to pile into their largest positions. In addition, whenever any asset is especially popular or depressed, the media will seek out stories which will allegedly explain "why" U.S. Treasury yields will keep climbing even when they are at their highest levels since 2000 (as in October 2023) or why AI stocks will keep rising regardless of how overpriced they are (as in December 2023). If you follow the media then you will repeatedly buy near each top and sell near each bottom.

The current U.S. equity bear market is following its usual sequence of sector bottoms.

The Russell 2000 and nearly all related funds such as IWM, along with most stocks worldwide which are unrelated to the AI bubble, have been in notable bear markets since their November 2021 tops, on average losing about 20% of their value during the past 25 months. Before any U.S. equity bear market intensifies, as the current one will almost certainly do soon, we have a sequence of historic sector bottoms which are completed in the following order: 1) U.S. Treasuries which probably completed their nadirs in October 2023 and are in major uptrends; 2) gold mining and silver mining shares which I expect will bottom around the spring of 2024 before initiating powerful rebounds; 3) emerging-market stocks and bonds which will perhaps bottom around the summer of 2024 with Chinese shares notably underpriced and which could thereby become compelling bargains at that time; 4) non-precious commodity producers which might also gain by substantial percentages after they bottom later in 2024; 5) special situations which vary from one bear market to another. In this case, the sectors which could approach multi-year lows in 2024 and thereafter rally strongly might include currently unpopular biotech shares and their funds like XBI along with airline shares and their funds including JETS.

I also plan to be open-minded about other sectors becoming worthwhile for purchase sometime during 2024.

The ultimate bottoms for most AI shares won't occur until 2025 or 2026.

As a general rule, those shares which achieve historic bubbles tend to lose over 80% of their value and to take two to three years to complete their total downtrends. After QQQ had topped out on March 10, 2000, it lost 83.6% of its value by the time it bottomed exactly 31 months later on October 10, 2002 (see stockcharts.com which includes all reinvested dividends by default). If QQQ loses 83.6% of its recent high of 406.5, which could potentially go even higher in the short run, then this would mean an eventual QQQ bottom of 66.666 which looks to me like a very lucky number indeed.

The bottom line: An increasingly profitable strategy during the 21st century capitalizes on the tendency of the vast majority of hedge funds to use momentum methods and to thereby overcrowd massively into various positions. Top corporate insiders and commercials throughout various points in 2023 have been doing almost exactly the opposite of those hedge funds near all key extremes for a wide variety of assets including AI stocks in December (QQQ,SLK,SMH), U.S. Treasuries in October (TLT), the Japanese yen in November (FXY), large-cap energy shares in September (XLE), and all precious metals in early December including palladium (PALL), gold (GLD), and silver (SLV). You can therefore consistently make money, although not always immediately, by following the insiders and commercials and doing the exact opposite of the most overcrowded hedge-fund concentrations during the next several years.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, December 22, 2023. Each position is listed as its percentage of my total liquid net worth.

I computed the exact 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) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/Savings/Checking long: 36.32%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 21.66%;

TLT long: 11.67%;

I Bonds long: 10.54%;

PMM long: 0.01%;

XLK short (all shorts once again unhedged): 28.39%;

QQQ short: 17.23%;

XLE short: 5.15%;

XLI short: 2.77%;

XLV short: 1.69%;

SMH short: 1.01%;

AAPL short: 0.02%;

SARK long: 0.90%;

PSQ long: 0.03%;

PALL long: 0.20%;

GDXJ long: 0.14% (fully hedged with out-of-the-money covered calls);

Gold/silver/platinum coins: 6.28%;

FXY long: 0.17%;

PAK long: 0.03%.