"The most important quality for an investor is temperament, not intellect." --Warren Buffett

THE GRAND ILLUSION (September 14, 2025): Once every few decades, far too many investors become convinced that if they throw a ball into the air with enough strength, it will go into orbit. By many measures, large-cap U.S. stocks have never been more overpriced relative to corporate earnings not only in the entire history of the United States, but for any country in the world at any time. Many investors have convinced themselves that the U.S. stock market only goes up, and have therefore put a large percentage of their retirement funds into the same stocks that just about everyone else has been buying. Regardless of how high these prices climb, or when they drop, the eventual inevitable regression to fair value and beyond will be an unpleasant event for most people who have forgotten the lessons of past bubbles and are convinced that because of one reason or another, "it's different this time."

Many stocks have proven intrinsic value; the problem is that in many cases today the fair value is far below the current price.

Costco (COST) was recently trading at several times its fair value, most analysts upgraded the stock for one reason or another, usually saying the equivalent of "you should buy it because it keeps going up." The price-earnings ratio eventually reached 62.5. I wouldn't touch Costco at or above one thousand U.S. dollars per share, but if its price went below 100 then it would become a worthwhile bargain and I would gladly accumulate it. This would be especially true if top corporate insiders were to become substantial buyers rather than selling at their heaviest pace ever recorded as they had been doing during the past year.

Any stock is a bargain whenever its valuation is substantially below what Benjamin Graham or Peter Lynch have described in their formulas as representing fair value. Earlier this year, especially in April 2025, we had numerous stocks in various sectors including energy and emerging markets which were trading near or below half fair value, and we accumulated as many of them as possible including RIG, WTI, EWY, and FLBR. During the past year we also had worthwhile undervaluations for U.S. Treasuries and TIPS including the highest yield for 30-year TIPS last month since 2001. Palladium was a compelling bargain at all-time lows in real terms and all-time bullish traders' commitments, which we repeatedly purchased via PALL. As is the case with all undervalued assets, they will generally rebound more than most other assets in percentage terms.

If you own undervalued shares then it is less necessary to sell them following a rally, since they will eventually rally again. If you own overpriced shares then one day a rally will be followed by a dramatic percentage decline in order to regress toward fair value.

More importantly, since underpriced assets have to climb rather than falling to reach fair value, it is less necessary to sell them whenever they have recently rallied. If an undervalued asset retreats, it will eventually recover because it is less than its intrinsic fundamental worth. Ono the other hand, if you own an especially overpriced asset which insiders have been aggressively selling, then you will eventually lose a large percentage of your investment. You just don't know when or how.

Cryptocurrencies have no proven worth and will end up collapsing even more in percentage terms.

It doesn't matter how many people recommend cryptocurrencies or who they are, since a cryptocurrency has no intrinsic value. Unlike a stock, it doesn't represent part ownership of a company, and unlike a bond, it doesn't represent a promise to repay principal with added interest. It is only worth whatever a bunch of other people, most of whom are among the least experienced investors, believe it is worth in their minds. It is like owning part of a fantasy, except that you have to pay real money for it. Perhaps there is some intrinsic value for someone who has to conceal their transactions, such as the black market, but whatever this value may be is far below the current valuations of nearly all cryptocurrencies.

Eventually cryptocurrencies will become nearly worthless. As with all other bubbles, it is unknowable in advance how or when this will occur, but it must happen one way or another. You don't want to get stuck holding the bag.

The long-term ownership of U.S. stocks as a percentage of total household assets has been at a median of 26% for decades, and recently climbed to more than double that long-term average.

The percentage of total U.S. household assets invested in the U.S. stock market briefly surpassed 51% in early 2000 before plummeting again. Recently over 53% of total U.S. assets were invested in U.S. stocks, thereby surpassing their previous 2000 peak. It is just a matter of time before the 26% level is reached again. There was a popular myth in 1999-2000, recently revived, in which investors "had to" put their money into the U.S. stock market because there was no alternative. As soon as the U.S. stock market, especially the most popular funds, retreated 30% or 40% in 2001 and 2002, and again several years later, investors had no trouble finding numerous alternatives including "boring" U.S. Treasuries which saw their yields plummet after 2000 and after 2007.

When any asset is rising in price, investors will do whatever they can to own it. When it is falling in price, they will similarly go out of their way to get rid of it. We had all-time record outflows at each of the past several bear-market bottoms for the U.S. stock market. Even the brief plunge in February-March 2000 experienced two consecutive weeks of the biggest-ever weekly net outflows from U.S. equity funds.

No asset has its fair value changed because a particular group of analysts like it or hate it, or due to any other popularity contest.

The price of any asset will often fluctuate, sometimes hugely, whenever analysts either love it or hate it. However, popularity has no effect on the fair value of any asset. That is based entirely upon current and future earnings for a stock, and current and future income payments for a bond. The best time to purchase any stock is when it is the most undervalued relative to its future earnings, and almost everyone is telling you why you shouldn't buy it. The best time to sell any stock is whenever it is most overpriced relative to its earnings, and almost everyone is eagerly purchasing it.

The U.S. stock market usually tracks the real U.S. economy, but lately this ratio has become absurdly out of line even when it is compared with other bubble periods like 1999-2000.

Large-cap U.S. stocks in particular have far outpaced the U.S. economy, thereby creating a temporary massive gap which will have to be resolved either by U.S. stocks slumping in price or the U.S. economy suddenly tripling or more in value. Guess which will occur:

As measured by another useful fundamental indicator, price-to-book for the S&P 500 Index surpassed its previous all-time record from March 2000:

For the first time in history, price-to-sales exceeded 10 for one-third of all U.S. companies, versus only two-thirds as many during the 1999-2000 internet bubble which was the previous record:

Real earnings yield in the U.S. recently fell to its lowest point ever measured:

Like most of the world's most experienced investors, Warren Buffett made all-time record stock sales and all-time record U.S. Treasury purchases roughly since the middle of 2024. Naturally most investors have foolishly concluded that Buffett's amply proven track record is meaningless and that he must be getting senile, since Berkshire Hathaway has been trading near its all-time record discount to the U.S. stock market:

Gold is not currently a viable alternative, and neither are gold mining shares. Some of the biggest drops in history for this sector occurred simultaneously with bear markets for large-cap U.S. stocks, because bubbles for one asset class usually inspire bubbles in other asset classes.

GDX, the most popular fund of large-cap gold mining shares, plummeted 72.1% from its March 2008 top to its October 2008 bottom. Investors who expected precious metals to be a safe haven from a retreating stock market discovered that they lost more money with gold mining shares than with many other sectors. A similar percentage drop occurred prior to the mid-November 2000 bottom for this sector. The traders' commitments and insider data show that the most experienced investors have been selling gold and silver while central banks and individual speculators have been piling in.

Central banks consistently buy gold near tops and sell gold near bottoms, and will always do so.

At the all-time bottom for gold in real terms in the late 1990s, the Bank of England sold all of its gold. The Bank of Canada sold most of its gold below 1100 U.S. dollars per troy ounce near the end of 2015, the last time that gold was so cheap. Now that we have all-time highs, many central banks have been accumulating the yellow metal. The result will be the same as when they had last piled in during the late 1970s and early 1980s; afterward, gold slid from 850 in January 1980 to 250 in August 1982.

Fortunately there is a simple signal for when you should be purchasing GDX, GDXJ, and other funds of gold mining and silver mining shares.

Here's the "secret" to buying precious metals: wait for silver's traders' commitments to show that commercials, who are those who own actual silver including miners, jewelers, and fabricators who make things from real silver, have a combined long position which is near or higher than their combined short position. As of the most recent weekly reading, silver commercials had combined longs of 40,163 contracts and combined shorts of 113,565 contracts. That is definitely not anywhere close to a buy signal.

On September 6, 2022, silver commercials were long 55,823 and short 50,768. That was a strong buy signal. Compare what GDX and GDXJ have done from then until now.

Investors are obsessed with unknowable data such as how extreme any especially overpriced asset will become, or when, rather than the percentage it will eventually have to lose.

The definition of an intelligent Dutch investor in 1640 was someone who avoided the lure of Tulipmania. In 1723, a smart U.K. investor was someone who didn't participate in the South Sea Bubble. More recently, brilliant investors in 1975 were those who avoided the siren song of the Nifty Fifty in the early 1970s. In the 21st century, an insightful investor in 2002-2003 was defined as anyone who didn't chase after the most popular stocks in 1999-2000. In 2028, an intelligent investor will be described as someone who resisted the siren call of the AI bubble in 2025.

There is no need to change my long-term outlook, since it is based upon proven fair-value principles.

I am frequently asked if I have revised my long-term price targets due to the bubble situation. People expect me to say that I no longer expect QQQ to drop 83.6% as it had done from its peak on March 10, 2000 to its bottom on October 10, 2002, or that I don't think that GDXJ will retreat all the way down to 28. I have retained these and all of my other targets, and am tempted to expect even further percentage losses, since millions of new investors have piled into these and other assets only because they're chasing after what everyone else is doing. The more inexperienced people who crowd into anything, the more that the same people will panic out of the same assets after their losses have become emotionally intolerable. This is why the biggest percentage moves in one direction are followed by proportionate shifts in the opposite direction.

My subscription service includes two 70-minute participatory Zoom meetings each week. In addition to answering questions in real time, I log onto my brokerage account and show subscribers my purchases and sales, as well as my current open orders.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, September 12, 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: 35.42%;

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: 25.73%;

TLT long: 11.21%;

I Bonds long: 3.88%;

PMM long: 0.01%;

XLK short: 34.11%;

QQQ short: 25.12%;

GDXJ short: 1.52%;

SMH short: 1.43%;

GDX short: 0.24%;

AAPL short: 0.15%;

PSQ long: 1.24%;

SARK long: 0.38%;

Gold/silver/platinum coins: 10.55%;

PALL long: 2.62%;

EWZ long: 0.52%;

FLBR long: 0.51%;

EWY long: 0.11%;

FLKR long: 0.06%;

TUR long: 0.02%;

EWZS long: 0.01%;

UGP long: 0.42%;

VALE long: 0.30%;

GGB long: 0.17%;

BBD long: 0.15%;

RIG long: 0.44%;

WTI long: 0.07%;

PTEN long: 0.04%;

OGN long: 0.25%;

CLF long: 0.01%.

"A value strategy is of little use to the impatient investor since it usually takes time to pay off." --Seth A. Klarman

BIG BOTTOMS (October 16, 2022): Most investors misunderstand bear markets. Bear markets create opportunities for much greater and much faster profits than bull markets. This is because 1) bear markets on average last about one-third the total time of bull markets; and 2) the annualized percentage fluctuations in bear markets are roughly triple those during bull markets.

A bear-market bottom is a lengthy process, not an event.

During bear markets some assets tend to complete their lowest points within one year of the original top. If we begin counting this bear market starting with the S&P 500 all-time zenith of 4818.62 on January 4, 2022 then the bear market is 9-1/2 months old. This is roughly the time when a wide variety of assets including U.S. Treasuries, gold mining and silver mining shares, and some currencies including the Swiss franc and Japanese yen often complete their bottoms prior to powerful uptrends.

Most investors don't respect fair value or differentiation.

Fair value refers to the price at which any asset precisely reflects its fundamentals. Currently the price at which the fund QQQ would exactly match its historic average valuations relative to the profit growth of its components would be about 114. This is very far from its all-time record overvaluation of 408.71 less than one year ago. While QQQ has slumped below 260 several times in recent days, this is still far above 114, so the overall long-term downward trend for QQQ must remain lower for another two or three years until it is trading at a typical discount of 30% to 50% below fair value.

Investors are as baffled about bear-market rebounds as they are about bear markets.

One of the least-understood characteristics of any true bear market is that these feature frequent intense rebounds. Already in 2022 we had two surges higher, from mid-March to late March and then from mid-June to mid-August. We are probably transitioning to the third powerful surge higher of 2022. This recovery has been clearly signaled with the highest put-call ratios ever recorded in the history of the stock market (see chart near the bottom of this update), all-time record net outflows from many U.S. equity funds, the highest ratio of insider buying to insider selling since March 2020, and other reliable rebound foreshadowing. The U.S. dollar index and VIX have formed lower highs since September 28, 2022 which, in an environment of generally falling stock prices, usually indicates that equity prices are set for a sharp bounce higher.

Here is an example of the huge frequent bounces for QQQ during its 2000-2002 bear market when it had lost 83.6% of its value in 31 months:

Differentiation is likely to be among the top stories of the next two years.

What has happened so far in 2022? Investors have sold everything, especially in recent months: stocks, bonds, gold, currencies, real estate, art, etc. Almost nothing has been spared. This is common to the way that bear markets behave: in their early stages, investors are so confused that they sell everything and ask questions later.

Sooner or later, assets which classically bottom earliest tend to recover sharply. This usually includes U.S. Treasuries of all maturities, gold mining and silver mining shares, and safe-haven currencies like the Swiss franc and Japanese yen--and in this case also the British pound due to its widespread unpopularity. The more these assets diverge from QQQ and SPY, the more that investors will pay attention to them. Since very few assets are rallying in any bear market, the few which are climbing enjoy outsized attention and enthusiastic participation. Once funds like GDXJ have gained 50% or 100%, investors will be eagerly chasing after them because they desperately want to own something that is rising when almost everything else is falling.

Energy shares have been outperforming so far in 2022, thereby enjoying far too much attention relative to their fundamentals.

Why have energy shares been among the few winners so far in 2022? You will hear lots of explanations in the media, but the real reason is that they have been one of the few assets with positive gains in this calendar year. Investors are therefore crowding into them because they want to own something which is going up instead of going down. I believe this will end badly so I am staying away from energy until we have much lower valuations and much heavier insider buying in the energy sector. The lows in 2021 for funds including XLE and XES are warning of trouble ahead, representing a drop of almost half from their current levels whenever their 2021 lows are revisited eventually.

Gold mining shares and U.S. Treasuries will probably be among the biggest winners of the next two to three years.

Funds like GDXJ could triple or more from their recent lows including 25.80 for GDXJ, while "boring" U.S. Treasury funds like TLT will probably return 50% or more including reinvested dividends. This would not put either GDXJ or TLT anywhere near their respective historic highs. The more these ascend, the more that people will notice this behavior and will want to jump aboard the bandwagon. The secret to success with investing is to purchase these classic early-bottoming shares far ahead of everyone else, relying on their consistent bear-market outperformance to shine sooner or later. Investors become overly obsessed with only buying an asset which has already been rising, thereby causing such investors to miss out on half or more of their total percentage gains.

Selling puts on oversold but still-overvalued assets is a little-appreciated method which is even more profitable than selling covered calls.

Put prices tend to be their most overvalued when investors are panicking. If you are short something which is likely to eventually drop by 80% or more from its zenith--think QQQ--but which is temporarily being sold in a panic, then instead of covering your short position consider selling covered puts against it. This will allow you to capture temporarily-inflated time premium while retaining your short position. If there is an imminent collapse then you won't make as big a profit as you would have done otherwise, but you will usually get much more up front than you deserve in options premiums. Far more investors buy options instead of selling them, causing their prices to be inflated. Options buyers in general are buying hope via expensive lottery tickets, while options sellers tend to be more-experienced successful long-term options traders.

Long bull markets are followed by long bear markets.

The bull market which lasted from August 1921 through September 1929 was followed by a bear market which ended in July 1932, 34 months later. The bull market from October 1990 through March 2000 was followed by a bear market from March 10, 2000 to October 10, 2002, 31 months later. We just had the lengthiest bull market in history from March 2009 through January 2022, so expect the current bear market to last for at least 2-1/2 years and perhaps longer.

This gives us numerous opportunities to profit from--or to lose money by misreading--both the long and short sides.

Many assets will not bottom until 2024 or 2025.

The Nasdaq and the S&P 500 Index, along with related funds including QQQ and SPY, will probably not bottom until late 2024 or early 2025. Real estate, art, collectibles, and other non-financial assets will probably bottom several months later than U.S. equity indices just as they had mostly peaked several months later in 2022.

Here are five useful charts.

Investors are suddenly chasing after downside protection at a more frenetic pace than at any time in the 21st century:

The average investor has been panicking out of the market as aggressively as they were piling in near the end of 2021 and the start of 2022:

Commodity trading advisors are repeatedly buying near tops and selling near bottoms:

Gold's traders' commitments recently achieved a four-year bullish net extreme:

Commercials for the 2-year U.S. Treasury note reached an all-time extreme of net accumulation:

The bottom line: expect a powerful rebound but the U.S. equity bear market will not end for another two years or more.

Only buy something if it is historically likely to be in the process of completing a bottom which will be followed by dramatic percentage gains. Gold mining and silver mining shares often bottom within a year following a topping pattern for large-cap growth favorites, while U.S. Treasuries and safe-haven currencies also tend to bottom early. Most assets will not likely bottom for another two or three years.

Disclosure of current holdings:

Here is my current asset allocation, with the funds in each group ordered from my largest to my smallest positions:

VMFXX/FZDXX/Savings/Checking long: 33.4%;

XLK/QQQ/TSLA short, hedged with covered puts: 27.9%;

TLT/I Bonds/2-Year/3-Year/52-Week/26-Week long: 23.5%;

GDXJ/ASA/GDX/BGEIX long: 19.2%;

Gold/silver/platinum coins: 5.3%;

INTC long: 2.21%;

TKC long: 1.67%;

GEO long: 1.50%;

TEI long: 1.29%;

KWEB long: 1.17%;

FXY/FXB/FXF long: 1.16%;

VZ long: 0.63%;

EPOL long: 0.29%;

T long: 0.20%;

WBD long: 0.20%;

LEMB long: 0.04%;

PCY long: 0.03%;

NGL.PR.B long: 0.03%;

CEE long: 0.02%.

The numbers add up to more than 100% because short positions only require about 30% to hold them with no margin required.