Forward Focus - October 2025

Focusing on what matters is always better than concentrating on the wrong things. Right now, everyone is concentrating on Artificial Intelligence (AI), Technology stocks, and the Magnificent Seven (Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, Tesla). Investors are pouring money into these areas, reacting to every announcement, and bidding up the stock prices of these companies. Concentrating on these now might be the wrong focus.

Many of these companies have become quasi-monopolies (No? Are you really going to switch from your
iPhone or stop buying from Amazon? I didn’t think so). These companies have added to the world, and we are all impacted by them in some way. That’s great. I’m a fan. However, the overconcentration has led to areas of unhealthy unsustainability.

Three years ago, Nvidia was $12/share. Today it is $186/share. Nvidia is now a $4.6 Trillion dollar company by market cap. Many of the stocks that people are concentrating on today are priced to perfection and have already had massive rallies. The only reason they continue to garner attention is that they keep going up. Again, that’s great... for now.

However, by nearly every metric the market is expensive. Price to Earnings, Price to Sales, Price to Book, Q-Ratio, The Warren Buffett Indicator, Shiller CAPE Ratio, Michigan Consumer Sentiment Index, Crestmont P/E Ratio, Housing Affordability, etc... In fact, 91% of survey respondents to the August Bank of America Fund Managers Survey believe the U.S. stock market is overvalued.

Media headlines have started to inquisitively ask ‘Is an AI bubble forming?’, but my personal opinion is they only ask simply because they aren’t sure what else to say. They pose the questions, but don’t advise people to trim stocks, derisk, reallocate, raise cash, or set stock limits. In fact, I’ve read many articles that end by saying that markets are overvalued, it’s clearly a bubble, but bubbles can last a long time and can keep going higher. Yikes!

Forward believes that certain areas of the stock market are overvalued. Technology, U.S. large cap growth, AI stocks, etc.., but there are other areas of the market that look more reasonably priced or attractive (value stocks, health care, small companies, international stocks, to name a few). Those are the areas we are focusing on and areas where we believe the prospects for future growth looks promising. Investing is about making educated decisions on an unknown future. Continuing to concentrate on areas with historic overvaluations because they ‘may’ keep rising is dangerous. Forward prudently continues to have exposure to those areas, but is focusing more upon undervalued areas that we believe have longer-term growth potential.

It’s a little thing called Diversification. It is what led us to own and add to international stocks over the past several years ahead of this years 25% international rally. It is what led us to add to small cap stocks due to their attractive valuations. It is what led us to trim technology stocks, while maintaining exposure.

Markets can continue to reach higher highs and become even more concentrated and overvalued. The 10 stocks that make up 40% of the weight of the S&P 500 and represent about 50% percent of the markets return over the past 4 years (Source: JPMorgan Asset Management) can grow even larger. The stock market can keep this up and hit even more all-time highs. Eventually, though, valuations do matter and future growth is impacted.

History shows that when Forward P/E ratios hit current levels (Forward P/E = 22.8), future returns over the next 5-10 years are muted. Our focus is not on the next 3 months, it is on the next 3, 5, 10+ years. Many concentrate on today and lose focus on the future. We would rather gain focus and lose the concentration (over exposure to overvalued companies). Past performance is no guarantee of future results. We believe that.