Eyes Wide Shut
Today’s stock market, particularly with technology and AI companies reaching sky-high valuations, Eyes Wide Shut serves as a fitting metaphor for investor psychology, many participants see the risks but choose not to truly acknowledge them. Despite signs of overvaluation, limited profits, or speculative hype surrounding artificial intelligence, enthusiasm and fear of missing out keep money flowing into these stocks. Like Kubrick’s characters who ignore uncomfortable truths beneath a polished surface, investors may be keeping their “eyes wide shut” to structural weaknesses, assuming endless growth while disregarding cycles, competition, and regulatory risks. The market’s brilliance and mystery mirror the film’s tension between illusion and reality, everyone can see the potential dangers, but few want to look too closely.
As we reflect on the close of the third quarter, I am pleased to report that portfolio performance remained solid, with continued price appreciation and the steady accrual of interest and dividends. Despite these positive results, it is important to recognize the broader market environment. By many historical measures, equity market valuations remain elevated, and the S&P 500 has increasingly taken on the characteristics of a concentrated technology-focused index, driven in large part by the ongoing enthusiasm surrounding artificial intelligence investments.
In recent months, I have spent considerable time analyzing market risk. In our investment philosophy, risk is not defined by short-term price volatility, but rather by the potential for permanent loss of capital. Sound investing begins with carefully assessing downside potential and ensuring that every investment is supported underlying business fundamentals and investor expectations, particularly within the technology and AI sectors. Market participants appear to be projecting future growth based on narratives and announcements rather than demonstrated cash-flow generation. History shows that such environments are unsustainable; trees and stock prices do not grow to the sky.
To the left is a detailed, visual conceptual model of the inverted risk–price relationship, showing why declining prices can reduce risk (greater margin of safety) and rising prices can increase risk (greater overvaluation).
We combine valuation logic, behavioral psychology, and investment outcomes into one integrated diagram. Behavioral inversion: Fear and opportunity are reversed.
A vivid recent example is Fiserv, traditionally viewed as a stable technology financial services firm. Following earnings results that fell short of expectations, the company’s stock declined by over 40% in a single trading day, erasing approximately $30 billion in market value. We expect similar valuation adjustments across other high-growth technology companies as market expectations realign with operating realities. Importantly, your retirement portfolio remains insulated from this speculative segment of the market. Our strategy continues to emphasize high-quality, conservatively managed businesses that generate consistent cash flow, pay sustainable dividends, and trade below intrinsic value, ensuring an embedded margin of safety at the time of purchase.
We have created a conceptual risk model, which is a inversion of the traditional “asymmetric risk perception” model, and it reflects a contrarian or value-investing mindset, where falling prices reduce risk (because valuation improves), while rising prices increase risk (because valuations become stretched).
Over the past quarter, I have visited management teams across the country to deepen our understanding of current and future business conditions. Recent meetings included Core Laboratories in Houston, a highly specialized oil services company with an attractive return profile, which appears to be transitioning into a $25–$30 per share in a strategic acquisition by a larger industry participant. We also met with the leadership of Morris State Bancshares in Dublin, Georgia. The institution has a dominant presence along the I-16 corridor between Macon and Savannah, an area well-positioned for strong economic growth in the years ahead, making the franchise an appealing asset in a consolidating banking landscape. As always, thank you for your continued trust. We remain focused on prudent capital stewardship, disciplined opportunity selection, and the preservation of your wealth over the long term. Please feel free to contact me should you have any questions or wish to discuss your portfolio further.
Sincerely,
Dr. Christian Koch, CFP®, CPWA®, CDFA®, RICP®
