Unconventional wisdom: Is AI mania testing your discipline?
As a handful of tech shares dominate returns even patient investors can start to have doubts.
Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.
Unconventional wisdom: Is AI mania testing your discipline?
“The two most powerful warriors are patience and time.”
— Leo Tolstoy
As the moderator on a panel discussion I asked Morningstar Portfolio Manager Bryce Anderson if we were in an AI bubble. He replied that the tern ‘bubble’ was unhelpful.
Bryce is right of course. Calling something a bubble doesn’t help me achieve my goals. I need to invest to get what I want out of life and using a blunt term like ‘bubble’ papers over the nuance of the share market. There are always opportunities.
Yet something is happening with the share market that doesn’t feel right. And that makes me pause and think. It introduces doubt. All of this makes it harder to follow a consistent investment strategy.
Year to date 12 US shares have doubled in value. 11 of them are AI stocks. Since the start of 2024 9 of the top 10 top performing shares in the US are AI stocks. 8 have a 300% plus returns.
As an income investor my portfolio is decidedly not an AI play. Yet even I’m seeing strange things happen.
I previously wrote about a truck engine manufacturing company I own which got caught up in the AI boom because they also make generators used in data centres. I trimmed that position in Cummins.
Now my largest position is Cisco, a company that produces networking hardware and software. Investors are excited about demand from AI infrastructure, and the shares are up 54% this year.
These are nice problems to have but other things are going on. The ASX 200 is down 1% this year while the S&P 500 is up 8.56%. The Nasdaq is up 16.47%. My boring portfolio is getting dragged up by a few holdings but mamy positions are just treading water.
My portfolio reflects the narrow rally occurring in the overall global markets. It makes you think.
Pushing my boulder up the hill
I’ve long equated building wealth with the story of Sisyphus – with an important caveat.
Sisyphus was the King of Corinth and the city was thriving. But with that came hubris and he kept defying the gods. A fed-up Zeus punished Sisyphus by forcing him to spend eternity pushing a heavy boulder up a hill only to see it magically roll back down so he could start again.
I don’t think building wealth is a Sisyphean task. Far from it. But I do think it takes the persistence of Sisyphus. I like to imagine my efforts eventually getting the boulder to where I want it through the investing equivalent of magic. That is compounding. Put in the hard work of saving and investing and at some point a portfolio is big enough for the returns to really move the needle.
For me persistence is saving and investing but also focusing on dividends. Passive income compounds and eventually can make a real difference in your life.
I leave speculation and the constant search for short cuts to others. I search for companies with steady growth and rising dividends. Persistence and patience are my superpowers.
Trying times for patience and persistence
The picture of successful investors in the media and popular culture focuses on one consistent trait – confidence. Successful investors always know what to do and do it with absolute conviction. They are immune to the uncertainty and self-doubt of the masses.
These idealised investors know event A will lead to result B and exploit that inevitability for their own gain. This is far from real life. Everyone has doubts and all but the most ignorant know the future is unknowable.
I used to own chipmaker Intel. The company is a mess with earnings falling from $5.47 a share in 2021 to $0.57. The US government bailed Intel out and owns 10% of the company. It lost its Morningstar Moat Rating.
When the dividend was eliminated in 2024 I sold my shares. This year the shares are up 221%.
It is hard to focus on persistence and patience when things like this happen. And like most investors I have self-doubts.
Would my future be better if I jumped on the AI bandwagon? Is it too late to get involved now? Most people second guess their decisions and I’m not any different. I have to remind myself of my superpower.
Anatomy of a bubble
It isn’t enough for an investor to know market history. Success comes from taking the right lessons from history and applying them at the appropriate time.
I’ve been hearing many people justifying the surge in AI shares by citing the profitability of the tech companies involved in the boom. This is contrasted by the popular portrayal of the dotcom bubble.
With the benefit of hindsight, it is easy to scoff at companies like pets.com and the deliriously greedy investors who leapt at the chance of owning a company trying to sell pet food over the internet. Ironically this is done as Amazon packages crisscross the country and groceries arrive in delivery trucks.
The dotcom bubble wasn’t just dubious sounding start-ups that enticed investors. Profitable companies like Microsoft and Cisco were caught up in the mania.
In one sense investors were right about their future as both continue to thrive. The issue was the price they paid. Cisco only surpassed the dotcom high in December 2025. It took 16 years for Microsoft.
The same thing happened in the Nifty Fifty boom in the late 1960s and early 1970s. Great companies whose valuation got out of line.
The term bubble might be unhelpful. But something is up when Allbirds switched from a footware company to a data centre provider and the shares went up 600% in one day.
I’m not going to make any wholesale changes to my portfolio. I’m not going to change my strategy. But I am going to focus on position sizing and trim my holdings when they exceed my 5% single share tolerance. I will put that money into the companies the market is ignoring because I don’t think will last forever.
Final thoughts
Sisyphus didn’t think the rules applied to him. His arrogance blinded him to the possible consequences of his actions. The investing equivalent is thinking there is a short-cut to wealth by chasing performance.
When the gods responded to his arrogance with an impossible task he found meaning in his struggle. He defied his punishment by embracing it.
Whatever investment strategy you pursue keep plugging away while trying to ignore the inevitable self-doubt. Embrace the work it takes to build a better future.
Email me at mark.lamonica1@morningstar.com and let me know your thoughts.
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