Is It Time to Stop Buying the Dip?

Over the last 15 years, markets have conditioned investors to believe the dip is always temporary. And sometimes it is and sometimes it isn't. Buy the dip has been the simple mantra for investors for a long time now.

Like they say, it always works until it doesn't.

That's right. Over the last few months, tech has sold off, software valuations are compressing, and there is definitely uncertainty in interest rates. Gold is signaling caution.

Markets are definitely turning. And so we need to be really, really careful with our crystal ball, uh, with the turn to make sure that we're positioned to take advantage of the upside and not dip our toe in what is gonna be sinking like quicksand.

That's right. And so the real question isn't whether markets are volatile. We certainly know they are. It's this: are portfolios positioned for continuation or prepared for deterioration? Today we're walking through what we're actually seeing and why we're prioritizing predictability, income durability, and balance sheet strength. Over chasing rebounds. Welcome back to Fundamentals of Investing. I'm Brian Dress, Director of Research here and also an advisor here at Left Brain, joined as always by Nolan Langford, our CEO and Chief Investment Officer. Nolan, welcome to the program.

Thank you, Brian. Happy to be here.

Well, Nolan, we work with executives, business owners, and family, families managing significant capital, helping them structure portfolios designed for full market cycles and not just for headlines. Today we're gonna break down what's actually happening beneath the surface and how we're positioning things in response. Let's start at the highest level. So Nolan, we've got volatility. There's no question about it. Is this normal volatility or something more structural hiding below the surface?

This one could be a little bit different. Um, you're right. Market action so far this year has been pretty sloppy. I sense we're getting a rotation where we're getting these rotating bear markets where it just goes from sector to sector. Right now, you're right, tech and growth is on the outs. Values and dividends is on the in. And we'll see what happens as we move forward.

Okay. So, Nolan, like we said on the open, buy the dip's been the mantra for years and it's worked for the most part. So we understand how people have become conditioned to that. But what's generally— what's genuinely different about the pullback we're seeing right now compared to what we've seen previously?

So I think this one's a little more complicated. You know, we have a lot of crosscurrents. The one that very few people are talking about, but investors may be positioning for, is the new Fed chair. As of a couple of weeks ago, we know who it's going to be. We just don't know what he's going to do. And so I think the market could be fearing that. I think there's also this AI disruption that we talked about, and I think we're all trying to decide whether it's friend or foe. I think we're worried in the job market that maybe it'll displace some jobs. And we heard this talk about no hire, no fire. Yep. And so I think that creates sort of a paralysis. At the same time, every time a new, uh, one of these AI companies drop a new feature, it decimates a different sector of the market. It's a nuclear bomb to some of these valuations. So I think that's the other thing that's happening. Remember, we're also in a midterm year. That could be part of it. Okay. And, you know, the rise in gold is, it's suspicious. Let's put it that way. And then finally, you have Bitcoin, which has really lost its footing. And I think that's really done a number on risk appetites. So I think it's multiple things that are gnawing at investors right now.

That's a great tease, Nolan. You talked about a number of things we're gonna talk about as we, as the video unrolls here. But I, one thing I did want to talk about as we start, we've seen a number of stocks that have done really well kind of fall over the last few months. And what I want to ask you is, do you think that's valuation compression or do you think there's some earnings vulnerability emerging as well?

It's really hard to tell. And I'm a little stumped at this point because there's been some, companies that have come out that have given some great reports only to be met with just more selling. You know, ServiceNow, we seen a couple of weeks ago, we had AppLovin this morning, but the list goes on and on. It, it's like investors are a hard group to satisfy. Even when you meet expectations and raise the expectations, a lot of these companies are still falling. And we've seen some really bad earnings reactions where in the after-hours, immediately after release, a stock is up and sometimes the next day, but then over the next couple of days they give that back. And so we'll be watching to see if that continues. But it's definitely a disturbing trend at this point. Okay.

And we're getting a little bit more defensive. So, you know, we always want to talk to our clients and we have made a few moves to be a little bit more defensive, but we're not going completely in a shell by any means. But what I would ask you is, what could possibly change materially that would make us want to go even more defensive?

Yeah, you're right. So let's talk about that. You know, when you take a look, we're, we're looking at a few things here when we're building portfolios. We're looking at the fundamentals of a company. Hey, are you still performing well? Are sales still growing? Do we like the trajectory of earnings and cash? Uh, and then there's the technical side. You know, how is the share price reacting? Right. In relation to those fundamentals sort of getting better. And then quant, like what is the overall environment like? And clearly, as there was a flip, a switch flipped a few months ago where some of our holdings or some of these great growth stocks have done very well the last several years, really started to plateau. And then from there, they've started to decay and it's starting to increase, increase with momentum. Now, what we like to look at is the quarterly earnings release, and we're about halfway through, maybe a little bit more than halfway through the first quarter earnings release. And the pattern is pretty clear. If you're growth and you're not hardware for AI, then you're kind of on the outs at this point. So a lot of these companies that had a lot of momentum on the upside really starting to take, take on water. It made sense to sort of broaden out the type of holdings that we've that we have, and there are different holdings that will respond better in different environments. We think this could be a tougher environment this year. Yep. So certainly we want to move away from some of the more frothy or growthy areas and the things that are a lot more basic. Excellent.

And that's a great segue, Nolan. If it's a recalibration that we're facing right now, leadership usually starts first in tech. So let's go to tech and talk more about that. So tech and software drove much of the returns over the last 3 years between '23 and '25. What specifically has changed?

You know, I think the— so there's a couple of things. There's a lot of things, but there's 2 I'll point to right away. First, let's just talk software. Software is really a big component of the XLK. It's a big component of the QQQs. It's a big component of just the market in general and technology specifically. And software has done fantastic. You can go back, you know, a couple of decades.

Definitely.

It has a lot of attributes that makes it an attractive investment. But when AI hit the scene and as AI has grown, I think there's a huge fear that AI will really compromise software, that in some way, shape, or form, software is, is gonna be eaten up, uh, by AI. Now, the software guys would tell you nothing's further from the truth. They're going to incorporate AI features into this software to make the software more valuable. But as AI releases features like Vibe Coding and this Codex where people can code quickly without knowing how to code, no-code coding, I think investors are shooting first and asking questions later. So it isn't so much that business is worse today. I think investors fear business is going to be worse in the future. And because of that, they're saying these software businesses aren't as worth as much as they used to be.

Okay, so a little Investment 101 here, Nolan. We always say the price of the stock is a product of the earnings and then the multiple we're willing to pay for those earnings. So talk to me about— we just got through, well, not all of earnings, but a good number of the earnings. Are we seeing earnings deteriorate in these companies or is it really more of a multiple compression and why?

Yeah, for most businesses, we're not seeing business get worse at an accelerated rate. Nothing that would justify the stock price sell-offs we've seen. Okay, so it's either going to be an unbelievable buying opportunity when the dramatic selling stops. Um, I don't know. So multiples definitely are compressing, and a good way for the viewers to think about this: I own a classic car. It's a '67 Corvette. I'm not a car guy. Let's say '67 Corvette, okay? And it's worth $150,000, right? All of a sudden, there was a great big find in Hawaii, and there was a garage with 1,000 of these Corvettes in them, right? So now people are saying, I'm not willing to pay $150,000 for that, I'll pay you $70,000. That's multiple compression. You have the same engine, the, the same vehicle, The market just won't pay you as much for it.

Okay.

That's what's happening with software. It's multiple compression. The businesses aren't worse at this point. Okay.

And so many investors are calling this a buying opportunity. You actually alluded to that might be one of the two options of what's going on here. Why is it that we're not enthusiastically saying this is a buying opportunity?

We don't generally like to catch falling knives. Okay. I mean, that's how you get hurt. We want to wait till it drops on the floor and then we want to pick it up safely. So when the selling, the aggressive selling stops, I mean, we'll have a lot more evidence. We do have a watch list and a buy list of businesses that we absolutely love. And you've seen a lot of analysts and investors come to the defense of a lot of these software household name companies, right? Good revenue growth, great balance sheets, a lot of free cash flow. People just aren't willing to pay as much for them. So we'll have to wait and see. We'll have to see when it ends and at what price the selling stops at.

Okay. So when capital rotates at a high multiple growth, which it's starting to do over the last few months, it's got to rotate somewhere. So we're going to talk a little bit about sector rotation now. So leadership has been really narrow over the last few years. So the top let's say you could say any number, 5, 10, 15 or so companies has driven a ton of the return of the overall index over the last few years. Do you think that's changing now?

It looks like it. Okay. You know, I think the stat that I saw is if you take even one of the big sort of hyperscalers or Magnificent Seven, you could buy the entire small-cap index. Just, just with one company.

That's wild.

So we were very, very top heavy. Yeah. So I think on one hand, the broadening of the rally we've seen the last 6 months or so is really, really healthy. You know, markets starting to value the 493 at the bottom of the S&P 500. I think that's totally rational. The way that it's being done so far this year, if you take a look at the leaderboard, leads you to question somewhat what's happening beneath and when the music will stop.

And it's a bit violent, so that scares everyone. What sectors are gaining strength? So we want to talk about— we know what's kind of going out of favor. What's, what's coming into favor?

So I think in a large, to a large extent, the defense is on the field. Oil is up. Everything related to oil is up this year. And which is kind of a misnomer. I mean, you think they told us we were oversupplied in oil for forever. We had the issue in January with Maduro in Venezuela. Yes. So now that we're looking at possibly more oil interest entering the market. And so with that being said, you think, you know, it's not a great environment for oil, but you'd be wrong. Oil and oil stocks are on the leaderboard this year. It's not actually gold. Homebuilders. Are doing well this year. And then staples— staples are up double digits, up 15%. These are basic goods and services— toilet paper, tissue, soda pop, you know, just basics at the grocery store. Gold is up roughly 14% as of this taping. And then the defense sector— I mean, national defense So things like Lockheed Martin, Raytheon, tank builders, those businesses are up. There are a couple. And then real estate. These are the classic areas that you see in a recession or downturn. There are a couple of growth areas that are on, though, that are really strong. Semiconductors are up double digits and industrials. And I think they are just forced to be up just by the magnitude of the growth in those sectors. We have onshoring. Reshoring, manufacturing, electrification of the grid, data centers getting built out. And so there's just so many hundreds of billions in capital that those areas are up from a growth perspective.

Okay. So that's a lot of different areas that have caught a bid here. So there, I guess there's a couple of different types of rotation. There's one that's very healthy. So we move from, you know, narrow leadership to a more broad-based leadership and a lot of different sectors do well. And then there's another rotation, which is we're afraid and we want to go into defensive sectors. How do you kind of differentiate the two and which one are we seeing in your view?

Yeah, in my view, this is, this is a rotation where the defense is on the field, like I mentioned. So I don't want to say it's bear market behavior, but it certainly indicates slowdown, caution, and concern among investors. The go-go sectors aren't doing well. Give you a case in point, financials. You'd expect financials to be doing very well. It's a lower interest rate environment. We do not have a recession. Loan books are pretty clean. We just had earnings releases from banks and they told us they did very well. And then the other big one is you have a lighter regulatory environment. So the Trump administration has told us regulation that's been choking these banks since the great financial crisis is coming off. All that is a very positive backdrop for the financial sector, yet and still it's down 6%, right, so far this year. Um, and then we talked about tech, not just software. If you take a look at the Mag 7, uh, cybersecurity stocks are down pretty significantly this year. QQQs are down, uh, the XLK is down, and a lot of fan favorites that a lot of clients own and like these big growth companies, they're down a lot this year too. So that tells you that that's sort of the optimism trade, right? That is out. Yeah.

Okay.

Okay.

So we've seen the rotation, but there's also something in the background, as you mentioned at the top of the show, which is there's a new Fed chair. We've been on the way down in rates for the last couple of years, though it hasn't been dramatic. So the rate environment's underpinning a lot of this. Talk to us about how rates are playing into what we're seeing.

So on the long end, the 10-year Treasury is still range-bound, 4.1 to 4.3, let's call it, is where it's been capped. So we haven't really seen a lot of movement there. It's really on the short end, and that's the end that the Fed really that they target and that they can control. Exactly. And I think there's been some debate. Clearly, we know the White House wants lower rates. The market is pricing in actually 2 rate cuts this year. And we're going to get a new Fed chair that was selected by the president. So it'll be interesting to see if he sort of upholds Fed's independence. Or whether there are a lot of cuts. Now, I've heard both sides of it. One is AI is going to make us all more productive. Okay, so that means inflation won't be an issue. And if inflation's not an issue, then they can be more aggressive on cuts. Okay. Uh, the concern is he's looked at as not being as independent. Fed loses some credibility, market sort of gets spooked. So that's what's happening with interest rates. Well, right now there's 2 built in to the cut cycle. If you take a look at the inflation gauges, depending on which one you're looking at, inflation hasn't come down a whole lot. If you look at the traditional inflation measures. So I still think it's an open book at this point. There's still some uncertainty there.

So you said the magic word, which is uncertainty. So how does that uncertainty meaningfully alter the way that we manage things?

Well, it just means that we don't have as much conviction in certain things. We want to be a lot more diversified, if you will.

Okay.

And a lot more cautious in our allocations. And you've kind of seen that with some of the new holdings that we've added to the portfolio. They were things that I would consider to be more boring than exciting, more blocking and tackling than 50-hour bombs.

Yep.

And, um, I think it makes sense. I think you can say, um, portfolios these days that we've constructed have been more defensive than they've been in quite some time. We have, um, added a lot more tougher economic condition type holdings in the portfolio. Uh, still really good businesses, but things that will do well if the economy doesn't do as well.

Yeah.

And things that are a little bit more consistent and predictable. Excellent.

Uncertainty rises, hard assets tend to move as well, Nolan. We'll talk, let's talk just briefly about gold, Bitcoin, and silver. So we've seen a— and oil, we'll throw oil in there too. But we've seen a monster move in silver, a mini monster move in gold, and then Bitcoin gone the other way. You know, a lot of people had made the argument that Bitcoin was like digital gold. And then when you have uncertainty and rates falling, dollar debasement, those sort of things, it should go up. What are you making of the, the action in all those commodities right now?

I don't think it's positive. Yeah. You know, I think gold last year was really interesting, especially for people who were prescient enough to own it. I think the people that owned it last year were probably people that owned it for the last 20.

Oh, believe that.

But gold last year took off as part of the Sell America trade.

Okay.

And then the US dollar became weak, which by definition priced gold up. Yeah. Then I think you got momentum going. I think you had a confluence of events. You probably also had a lot of central banks around the world that historically had held a lot of US Treasuries. Um, once our government started picking fights all around the world, I think they said, okay, well, is it possible we could own something else other than US fiat obligations? Since the rules are being changed, can we hold something where the rules won't change? And clearly they didn't pick Bitcoin, they, they didn't pick digital gold, they picked physical gold. And so I think there was a squeeze to the upside on gold. We'll see if it continues this year. So far, I mentioned this year it's up about 14%. The huge increases— I thought it was interesting today was a sell-off and gold sold off a lot, actually more than stocks. Okay. Silver sold off a whole bunch more. So I think that's part of it. It's the sell America trade. It's the fact that interest rates were low. We also talked about money rotating. Yeah. And if you're not buying a lot more Treasury bonds, you don't love stocks, Maybe these hard assets is a way for you to sort of express an opinion. So I think that is a little bit of it. I think the digital gold argument, I think doesn't really stand in the same room as these other two. I think there's something else that's moving Bitcoin. I would have— if you'd have told me, you know, last 6 months or so, markets were going to be jittery for whatever reasons, I would imagine that given the macro geopolitical that we've had, you know, our tariff fights, the wars going on throughout the world, the weak US dollar, I would have thought Bitcoin would have held up better. Sure. And the fact that it doesn't and it's actually doing worse than even aggressive tech stocks, that is concerning. And it's actually for the last couple of months been leading risk appetites.

Right.

Yeah.

It's not a good— it's not a good feel and not a good look. So I'm glad you covered Bitcoin. It's definitely revealed itself to be something different than what maybe people had thought before. But let's move back to something that's very practical, and that's cash. So Nolan, we've talked about this ad nauseam for years now, but it seems to be even more important in the current situation. What would you say to investors who are holding a lot of cash right now?

I think there's still opportunity to put cash to work in areas of the market that are really not impacted, at least not in any meaningful way by things that we've been talking about, the macro geopolitical, you know, the machinations of the market. I think for cash, if you're holding cash, particularly if it's at the bank and you still have a decimal point in front of the interest rate that they're paying you, you still need to move and do something. Even though inflation is lower, it's not zero. Yeah, I think the stated number is probably 2 to 3% on the headline. We look at cash bonds all the time and we're still getting 6%. So if you're getting 6% on a bond and inflation is 2% to 3%, you still have 3% to 4% in real return, which I think is really attractive. Outside of that, you know, we've looked at other investments. There's one that we really like that we've been buying, which is a tax-free fund. There's two that we're using. One is a 4% tax-free, the other one's a 7%. The 7% has a little bit more movement to it because they use leverage, even though it's done well. So I think those things are interesting. There's a lot of things that we've been— that we've been looking at that pay rate— rates between 5 to 7%. And some of them are tax advantaged, which means instead of being taxed at ordinary tax rates, you're taxed at either the capital gain or the qualified dividend rate. And for most people, it's probably going to be 0 or 15% rate. So I think those are attractive. And more importantly, a lot of some of these holdings, you know, the least frequent they pay is quarterly, but some of these pay monthly. And so you get your money returned to you fairly quickly. So if you're a cash investment holder or you've been sitting on the sideline waiting, I think there's some things to be done in income securities that I think at the end of the day you'll like what you see. Okay.

And I just want to ask you this, Nolan. So I think some people, I mean, I know some people hold cash just because it's the path of least resistance and they haven't thought to do something different. Let's leave those people aside. They need to do something. We know that. What about the people who think they're being prudent by holding cash? Talk about whether that, when that turns into sort of a stagnation.

I think the longer you wait, the more stagnant you become.

Yeah.

You know, if you get your statement and you're used to seeing, you know, half million dollars in cash and you just get used to that. And so psychologically that becomes the bogey, right? And so if it drops below half million, maybe you start to get a little antsy. Yeah. And but I do think there's a real cost to it. You know, in my example, I said half million. And if you have half million at the bank, we know banks are paying not 1 or 2%, but 0.1 or 0.2.

Exactly.

And inflation's 3. You know, even if you move away and you go to something that's paying you 4 and you have $500,000, it's $20,000 a year in interest income that you forego. $1,666 a month. Yeah. So it's meaningful. Okay. And so I think investors need to at least do something.

Okay, so let's step back. Let's kind of wrap things up. We know it's kind of a volatile environment. Things are changing and rotating. Why is it that we're leaning into predictability right now in 2026?

Because I think the— at this point, like I mentioned earlier, the defense is on the field, but I think the boring stuff is actually starting to look interesting. Okay, so let's go back and talk about what's winning and and whether it can continue. So oil, you know, if you go back years, we've been following oil, you know, initially on the bond side and then on the equity side. We've been in and out of oil. So these oil stocks, people left them for dead. It kind of reminds me what we're talking about software. We're going to wait for them to bottom. Yeah. So people have ignored oil stocks for forever, but the oil companies themselves haven't been forgotten. They clean their act up and they actually generate a lot of free cash flow.

Yes.

Now, because they aren't growth vehicles, what they do with that free cash flow is just send it back to investors. So you often see really big dividend and dividend yields from this oil company stocks. And people are starting to be attracted to that.

Yeah, it's not so bad.

No, it's not so bad. So I think that's one of the things. It's just, you know, it's starting to work now. And I think it's interesting. I think it may have a ways to go. I think when you look at things like REITs, real estate investment trusts, utilities, I think that I don't, you know, maybe REITs have a rebound characteristics to them. Yeah. But the other area that we looked at is on the industrial side. You know, you look at companies like Caterpillar, Honeywell, and you just take a look at what's happening in the industry. We talked about the reshoring. All of these companies that are bringing manufacturing back to the US, maybe these companies were boring before, but now they have a growth element. Yeah, to them, we don't have to worry about them being disintermediated by AI. You know, ChatGPT isn't going to start mining, so we don't really have to worry about those competitive dynamics as well. And I think that gives people comfort. Okay.

And the last question I want to ask you before we wrap this thing up, If we're in a— if we're early in that more challenging cycle. Right. And I know a lot of people have been conditioned to keep buying these growth stocks when they fall. How are these growth-heavy portfolios going to hold up and what are some of the dangers if you just kind of stand pat with, you know, 2023 to 2025 positioning going forward?

Yeah, I think you definitely want to pay attention to that and to be careful. You know, there's a couple of areas, you know, so you mentioned large-cap growth. And that was last cycle's winners. As we know, when these cycles change, leadership changes. Definitely. And so what we're seeing now is small caps are really starting to take the baton. International investments are back in vogue. Emerging markets are starting to look attractive to us. I actually like emerging market bonds starting to look attractive. Sure. And so these other areas that have sort of been ignored as all the capital and attention have been sucked up by these big growth companies at the top. It requires a fresh look with a new lens. And so you don't really want to be married to things. And I think that is what holds a lot of investors back, especially investors that are sitting on a lot of unrealized gains. They might be very reluctant to actually realize those gains, to take that capital, to move to something else. So I do think investors definitely want to be a little bit more independent, objective, and unbiased when we're considering how we might react.

I like that, Nolan. Thank you for those insights. We'll close by saying this: if the cycle strengthens, disciplined portfolios will participate. But if it weakens, disciplined portfolios are going to endure. That's not pessimism. It's just being prepared for the eventualities that may come our way in the next couple of years. For investors managing meaningful capital, it's not about chasing narrative. We want to structure portfolios that can withstand uncertainty without sacrificing opportunity. If you're reassessing liquidity, concentrated exposure, or overall allocation, that's a conversation worth having. Uh, we'll put our information below if you want to get in touch with us and discuss, um, if there's a reason for you to maybe move away from your current strategy. And also we're going to put the link down below for our income securities ebook, where we talk about not only the types of income securities, but also the types of income securities investors and ways that you can put those to work in your portfolio. We focus on discipline, durability, and long-term outcomes. With that being said, if you've enjoyed the video and you found it useful, please do like it and share it with your friends and leave a comment. How are you— to the question, how are you reacting to the current market environment? We'd love to, uh, discuss with you and engage with you here in the comments. Thanks for being with us on the, uh, latest Fundamentals of Investing in the Jarvis Update. We'll see you again next time.