The more things change, the more they stay the same.
In times of chaos and change, it is worth remembering that while the future is unknowable, we can learn from the past. With knowledge of what has gone on before, investors can better prepare for the uncertain future.
Legendary investor Sir John Templeton said that the four most dangerous words in investing are, this time, it’s different. This simple aphorism protected investors from being suckered into the 1999-2000 mania for unprofitable dot-com companies. It was a lesson learned from previous manias, such as for railway companies in the early Victorian era and the lesser-known bicycle bubble of 1896. Some think it will apply to the AI bubble of 2023-2025.
At the turn of the millennium, techno-optimists pointed out that internet adoption had caused a paradigm shift, rendering traditional company valuation metrics obsolete. When the bubble burst, Amazon, a fortunate survivor, experienced an 85% drawdown as capital fled to unloved, lowly valued, everyday stocks. From 2001 to 2007, the value style recorded its most significant relative outperformance in stock market history.
Yet despite the chaos and mayhem of the dot-com bust, the techno-optimists were right; their paradigm shift did happen, the internet changed everything. However, the Gartner Hype Cycle refines Templeton’s simple mantra into the more accurate contention that we collectively overestimate the impact of technological change in the short term but underestimate its impact over the longer term.
The dot-com experience crushed growth investor confidence so profoundly that the full circle vibe shift took a quarter of a century to reach today’s Magnificent Seven AI dominance. Boosted by over a decade of QE and ZIRP cheap money, these vast $ trillionaire tech giants now restrict the oxygen of liquidity to alternatives. Their scale has eclipsed other markets like the UK, China, Japan, and Europe.
The London stock market’s irrelevance was illustrated by last week’s results from its parent company, the business data provider LSEG. While the data giant boldly claimed that its equity capital markets business had a strong year, the contribution from what used to be known as the London Stock Exchange amounted to less than 3% of group revenue.
The activity from which it derived its not-so-catchy name is no more than a financial rounding error for its parent. In the Times, Ed Warner suggests that LSEG partially sells the London Stock Exchange to its broking and banking customers, who have a greater vested interest in its success. Ironically, Warner’s proposal harks back to the exchange’s mutual ownership before the 1986 Big Bang deregulation.
Other UK companies are also round-tripping. Under threat from activist Elliott, BP is moving back to its roots in hydrocarbon extraction and processing and away from its twenty-five-year-old ESG contrivance of Beyond Petroleum. Elliott sees the value uplift potential if BP can replicate the relative success of the US oil majors.
At the same time, fund manager Aberdeen has decided to re-vowel itself from the ludicrous Arbdn back to its sensible original geolocational descriptor of Scottish prudence and dependability.
Finally, Unilever, whose previous CEO, Alan Jope, claimed he was on a mission to give its brands “purpose”, again chose, this time under pressure from activist Nelson Peltz, to replace its most recent CEO with the more financially focused CFO, Fernando Fernandez.
Terry Smith, one of the UK’s most prominent and straight talking investors, said of Unilever under Jope, “A company that feels it has to define the purpose of Hellmann’s mayonnaise has, in our view, clearly lost the plot.” Last week at his Fundsmith investor day, Smith approvingly described Fernandez as “basically dynamite”.
At the same investor event, when asked about the impact of the enormous AI capex being undertaken by the US tech titans, some of which he owns, Smith said, We need to see some big revenue and profit numbers related to this to [provide] an adequate return on these numbers… If we had to guess … it will echo what went on in the dot-com [boom and bust]. They won’t get sufficient revenues and cashflows, and everyone will run around saying, ‘This will never work’. And then, of course, somewhere amongst the rubble will be a great opportunity. But probably not on the first outing, if it’s anything like history.
Smith has seen this video before. He sees Joseph Schumpeter’s “creative destruction” concept as a powerful force in shaping the ultimate AI winners just as it did twenty-five years ago, with Nvidia now playing the part of Cisco and China’s Deepseek in the role of its chief disruptor.
In his 1942 book Capitalism, Socialism, and Democracy, Schumpeter praised capitalism’s creative power of destruction. But, he also worried about the growing indestructible “tax state,” where increasing demands for social programs and government spending overburdened the economy.
Eighty years on, with Trump and Musk applying the move fast and break things mantra to the job of government, one might say, plus ca change.
Written by Jeremy McKeown
Footnotes:
Chart: S&P 500 – Weekly
Source: TradingView (March 2025)
Explanation
Over a 2-year period, the S&P has returned c50% and has been the place to be for many investors. During that time, there were only two pullbacks of note, at around 10%, in October 2023 and August 2024. At the time of writing, the index feels very uncertain but remains well within the 10% range highlighted. The one key difference is the shape of price action leading into weakness; in previous corrections, it was quick, almost V-like. Currently, we are seeing a rounding formation consisting of a series of marginally higher highs and borderline equal highs, meaning that momentum is slowing with each pulse upwards. The bulls are not quite strong enough to break this just yet, and the index could end up pulling back into the -10% area, the location between two key areas of support. The horizontal trendline at 5650 represents strong activity and is around -7% from the highs, with the diagonal trendline found at around -11%. With the market being uncertain due to global conflicts, bond market disruption, inflation, and tariffs, does this weakness ease at the levels highlighted, and will we look back at this as another good opportunity to position ahead of the next leg? Or is it the beginning of a longer, deeper correction not seen for some time?
Further Reading & Listening:
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