Q3 Market Update 2025 | Why the Bull Market Is Stronger Than You Think

Welcome back, everyone. Here's a question you might not have been expecting to hear. Do you even know we're in a bull market? It's easy to miss. If you're watching the headlines, you'd think the economy's on shaky ground. You hear about weakening jobs, a pressured consumer, and uncertainty around the Fed. But beneath the noise, Q3 delivered some strong returns across indices and some standout winners in individual stocks. And yes, pockets of real opportunity. Today we're gonna break down what happened in Q3 from stock market winners and losers to earnings to AI tariffs, the Fed, and where interest rates might go next. We're also going to address the elephant in the room. Are we in a bubble or is this a fundamentally driven bull market? Welcome back. This is the Jarvis Update. I'm your host, Brian Dress, Director of Research and an investment advisor here at Left Brain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.

Hey, Ryan, uh, thank you, thank you for the intro. It's exciting to be here, and I'm really excited to be talking stocks again. We're at the end of Q3, and I can't wait to get started.

You know what, Nolan, it's been too long. We've talked about a lot of investment concepts, but we haven't talked investments themselves in a little while, so we wanted to get back with you guys and talk a little bit about investments today. But before we dive in, if you enjoy market updates like this, Don't forget to like and subscribe the video so you don't miss future episodes. Stick around to the end where I'm going to talk about an exclusive resource that we've got for you to help you rethink your portfolio in this environment. And that's our complimentary guide to income securities. But with that said, let's dive in. So, Nolan, we're going to set the stage here first and we're going to answer the question, are we really in a bull market? So, Nolan, if you look at the headlines and you read the news, which we try not to do too much around here, there are a lot of scary headlines. Around macroeconomic factors. But when we look to the— look below the hood and look at some of the companies that comprise the market indexes, you know, a lot of good things are really happening at the same time. So, Nolan, a lot of people watching the news might be surprised to hear we are in a bull market and we've been for now almost 3 years. Can you break down why that is and what are you hearing on the ground from investors?

It's interesting because we follow investments every day. And so we've been aware of this bull market. But I think if you think about the average investor, Brian, there's a lot of headline fatigue. You know, if you go back to 2022, you know, we had the, the double-barreled bear market. You know, we had stocks and bonds both down double digits, which hadn't happened in many decades before it happened in 2022. Right. And then we had a recovery in 2023, but it wasn't a V-shaped recovery. It was still very selective. So I think, You know, that couple-year period, remember we had runaway inflation that started during that time frame, right? The Fed started raising rates in 2022. Those scars might still be with investors, uh, where they need to see it to believe it. And they saw it in '23, they saw it in '24, but they want to see more. That could be a reason that most investors don't feel like it's a bull market. But you're right, it's absolutely, uh, You know, it's absolutely a bull market and it seems to be gaining strength.

You know, Nolan, I'm from Missouri. That's the show-me state. And I guess it's a show-me story for a lot of folks who are invested in the market. So Nolan, we do want to look first of all broadly at the indexes and what happened at the index level. And then we're going to jump into a little bit more specific detail from there. But I just want to level set for everyone and we're going to put a graphic on the screen as well. We'll start with the NASDAQ Composite. That was up 11.4% for the quarter. These are total return figures. S&P 500 was up about 8%. And the Russell 2000, now known, this has been an index that's been sort of hated, the small-cap index. The Russell 2000 was up 12%. That was the leader this quarter. So, interesting numbers there. Again, with a lot of headlines that are out there that sound icky, actually pretty strong performance at the index level. So I want to ask you this and let's get started with this question. Why do you think so many investors are feeling cautious even when things are going well?

You know, I think there is a disconnect between what's happening on Wall Street and what's happening on Main Street. Right. A lot of pain on Main Street and a lot of smiles on Wall Street. But the pain on Main Street runs deep. You know, I mentioned 2022 and the inflation. So if you think about the cost of just about everything, maybe with the exception of gasoline, you have like 3 or 4 years of continuous price increases. Now the price increases are starting to slow down. So maybe what was before 5 or 6% annual rise is down to 2 or 3, but it's on top of the last 3 or 4 increases, right? I think that impacts people. I think we also cannot estimate how people, how secure people feel in their jobs, their, their career. That's their livelihood. And I think some of the headlines we've seen, particularly out of Washington, in regards to layoffs and furloughs, I think has an impact. And we've even seen a lot of the far, uh, large Fortune 100, Fortune 500 do selective layoffs and downsizing even as their stock prices hit new highs. Psychologically, this has to have an effect and an impact on investors. And the final one, which may be the biggest one, Brian, is housing. You know, we're going to talk a lot about interest rates. Certainly at our firm, we've talked a lot about interest rates because they impact all types of borrowing for all borrowers. No bigger borrowing we do than for our mortgage. And right now rates are high. They're down from the highs of 7% many months ago, but they're still in that range of 6, 6.5%. And if you compare those house payments to what they were 4 or 5 years ago, I think people are still in sticker shock. Wages have risen, but not that much.

Right? Absolutely. And we're gonna talk about AI certainly as a theme. That's been something that's been driving positive feelings on Wall Street and at the same time, possibly, you know, driving these negative feelings on Main Street. So that is part of the disconnect and that's something that we're looking at from an investment point of view. Before we move to the next segment, Noland, would you say this is a broad-based bull market? Because obviously in '23 and '24 it really wasn't. Or is it being carried just by a handful of names or themes in your view?

[Speaker:Noland] Just looking at the data, that it is very broad-based, this rally. You know, I'm just looking at the quarterly leaders and laggards. And on a sector level, you mentioned the Nasdaq and the Russell kind of pacing us at 11% and 12%, respectively. But at the bottom of the list, I mean, you have to look— you have to get very out there to find something that didn't do well in the quarter, like Argentina, you know, that had issues. India. I mean, those are outside the US and then consumer staples, right? The boring stuff that people bought for dividends because they thought it was going to be safe. Turns out the businesses were anything other than, you know, consumer taste resistant.

Right.

But other than those two sectors, not much is down in the quarter. And that again is another way of saying it's a broad-based bull market. Okay.

We're going to get underneath the hood and learn a little bit more from your data that you've got there, Nolan, about what's going on. In, in individual stocks and individual sectors. We're going to talk here about winners and losers in Q3. So at Left Brain, we do a lot of reading of earnings reports and earnings calls, and that's where a lot of the operative information really is on a lot of the companies that we follow. So with that in mind, in Q3, and we start— I guess we were getting Q2 results in Q3 for earnings, but what sectors were really standing out to you as leaders in the last spate of earnings calls?

You know, I would say within technology there's a lot of subsectors within technology, but a lot of them are doing really well, namely the chip sector from technology. Everything to do with the AI buildout is doing exceptionally well. The power generators, because, you know, for these data centers, these AI data centers, which is where we're getting billions in spending, they all need to be powered. The big issue here in the US is getting the power to those data centers. Anything that's involved with engineering, electrification of the grid, bringing more power to the grid, those stocks have also done really well this year. The digital transformation stocks have done well. Cybersecurity has done fairly well. But financials, outside of tech, financials are another area that has really done exceptionally well, almost surprisingly so. And then finally, communication services. This is where companies like Google, Facebook, Spotify, Netflix— this is where they all live. That sector is doing exceptionally well. One final sector, we're talking about the AI data centers empowering that, which leads us to industrials. So the industrials are also having a really good year. They had a really strong quarter. Looks like they have, they have a lot of momentum.

Okay. So you mentioned consumer staples are struggling. What else are you seeing that's out there struggling this year?

So I would say the two big areas are the consumer. It is consumer cyclical, consumer discretionary. So if you think for the viewers, you know, if you think going to buy cars, if you think going out to eat, going to the grocery store, going to Target, going to the mall, anything that you would do to spend money on if you had extra money, but if you didn't have extra money, you'd be okay skipping it. Those things right now are really, really struggling. And some of these areas, uh, like consumer apparel and that, uh, certainly their situations were made worse by the tariff situation.

Right.

But some of these areas had been struggling for a while. We talked about consumers also at the grocery store. So the consu— you know, the consumer's hurting. If you look at Walmart, you look at McDonald's, you look at Target, even the dollar stores, these are areas you would expect to do very well. Yeah. When the consumers are struggling, and they're also struggling. And, uh, so that tells you the consumer is definitely in a world of hurt.

What about in tech? So we talked about a lot of the stories that are working in tech. What do you see in tech that isn't working so well?

I'm still saying that we're an earnings story. I think the market and investors are still paying attention to business models that work. Okay. I think they want to see acceleration, like improvement. Economic conditions the last 2, 3 years have improved, and I think investors are demanding that companies also start to improve. Not only on the top line with revenue, but on the bottom line with earnings. And, you know, that's a trend that I think, you know, certainly will continue. As far as the other things that don't work, investors are looking for growth these days. So stories that are still broken, the Beyond Meats of the world, the electric car makers that still aren't turning a profit. You know, I think the clock is winding on those stories. But there's a lot of stories that we call Lazarus, you know, where people left them for dead a couple of years ago and now they're, you know, they're rising to the sky. So the other area that I would say, Brian, that hasn't caught fire yet is REITs, real estate investment trusts. I think that's an area a lot of investors were looking for a rebound the last couple of years, especially after they have underperformed.

Right.

I think the thinking is now that rates are lower, the economy is on a solid, more solid footing. That they would catch a bid, but still not a lot of buying interest in real estate. So that would be another weak area.

Interesting. Let's talk a little bit more about earnings and business trends. So what did you learn in the last earnings season about kind of the health of U.S. businesses as a general, as general concept?

You know, I would say there was a few things that stood out. One of them, Brian, is just the tone of management. You know, typically you get on these conference calls And you always hear if there's any optimism, it's couched or measured optimism.

Sure.

And I won't say it's unbridled now. I mean, because you still have, you know, the regulators. You have to be careful what you say on calls. But I would say, broadly speaking, a lot more optimism, a lot more confidence in forecasts going out. And I don't know that I remember a time where companies had as much backlog Oh, sure. As they have now. So some of this business is starting to be more predictable than what we've seen in the past. Yeah.

So what's going on with the backlog? Talk, talk to us about— I think a lot of the businesses are AI-related and there's certainly some lag in terms of getting everything put in place for what the demand is. So talk a little bit about more, a little bit more about that and how that's filtering into some what some of these management teams are saying on the earnings calls.

So I guess this is really centered in the tech area. Because areas outside of tech, you know, finance, you're not going to have a backlog or anything. Well, I guess Goldman Sachs did a backlog of IPOs that already come to market, but typically, typically you don't. But in this AI buildout, things take time. You know, if you're going to bring a gigawatt of power to power a data center, you know, from an engineering standpoint, it takes time to get that power, to get the contracts, get the infrastructure, get the building built. I mean, these are complex engineering feats. I guess we shouldn't call them AI data centers. They're really like AI factories.

Sure.

And so you need all the equipment that goes along with that, right? And because of that, and because of that timeline, you have to book orders sometimes years in advance. So the companies that operate in this space, they have orders. You have to pay a deposit. So they have an idea of what the revenues are going to look like. And right now those backlogs are just getting bigger. You know, we mentioned You know, earlier this week on our analyst call, we're talking about Avago that makes the ASICs, Broadcom, that makes the custom chips not only for AI but for other workflows and infrastructure chips. And they mentioned on their quarterly call, not only did they have the highest free cash flow in the company's history, I think it was something like $10 billion, but they had the biggest backlog of orders that they've ever had. And That is something that I'm picking up on these calls, that they have a lot more confidence because the business is booked and it's just a matter of timing and when other things get into place so they can close the business. Okay. I think that's the same way with semiconductor, the foundries. If you look at Taiwan Semi that manufactures, they're pretty much sold out. I mean, you have to be on allocation to get in there. So I think people have really good lines of sight. NVIDIA and chips, they're pretty much sold out. And so this thing keeps coming rolling downhill. Now you got memory and flash for storage, and those are two areas that are also catching the tailwind of AI. They're also sold out for 2026.

Compelling stories there. AI. So AI is kind of running through a lot of the things we're doing investment-wise, and it makes me think about something that we talk about here a lot, which is multifold compounding. So these are— we talk about stocks that have the chance to go up 10 for 1, 100 for 1, or There's some stocks that have gone up 1,000 or 10,000 for one over the history of the stock market. So, can you talk to us about multifold compounders? And then we're going to talk about, once we get that definition of what that is, let's talk about it in the context of some of these stocks that have already had huge runs. So, first of all, just kind of define that for us. What does that mean, multifold compounder? And how do you think about that when you're looking for investments?

Yeah, multifold compound. I'm looking for something that we can put $100,000 into that could possibly turn into $1 million given enough time and enough things that goes in its favor. Yeah, that's what we're looking at. And the thing about it, I think a lot of people may not realize, is that compounding happens tax— you know, it's a tax-deferred, right, compounding, which is awesome because I get to decide when, uh, when I pay the taxes.

That's right.

And, and kind of how I pay them. So I the multifold compounder, if you're talking about, you know, a turbocharged to net worth building. Yeah. And if you can find 1 or 2 winners in your life that, you know, have that dramatic move, it can make a huge difference, you know, for people retiring early or just want financial security or putting a kid through college. And that's why we spend so much time looking for these winners. Okay.

We— you and I both been around now a little bit, a little bit of time here in this business, and we've seen some of these over the years, right? Do you think we're seeing more of those types of businesses right now in kind of the situation that we see right now and how the economy is developing than we've seen kind of in past decades?

Yeah, I would say yes. I think the opportunity is great and I think there's a few reasons that the opportunity may be brighter today than it was in the past. Okay. Let's start with the last first, which is indexing. You know, I think now in our country, passive indexing, buying the S&P 500 is sort of religion.

Right.

And as more people has jumped on that bandwagon, it's left fewer individual investors to pick individual stocks. So you get some opportunities that kind of have been overlooked by investors because everybody's just buying the bland index and nobody's selecting what could be individual winners. So I think that's one of the things that make, you know, picking winners in this environment attractive. I think the other thing is you know, the AI thing. I just think where we are in a bull market, we're so early in this Industrial Revolution 4.0.

Yeah.

Uh, you know, I always mention if it's a ball game, you know, they're still warming up. So it's still early. And if you take an environment like that, an area where it's a, you know, it's almost a technological revolution. If you're at the beginning and profits haven't started yet and you catch on to the right ones before profits really start to accelerate, You can do really well. So that would be another reason. The third reason, Brian, you and I haven't talked, we've kind of passed a little bit around this, but you know, if you go back to 2020, it's kind of an unforgettable market. But a couple of things happened that leads us to today where this third leg of opportunity and that's what happened. So COVID, the first half of COVID was really bad. You know, the markets shut in March of 2020. Sure. S&P dropped a whole lot. Markets reopened. And from then on, you know, the growth stocks rallied the last part of the year. So it was a really strong year. But in early 2021, February 2021, there was a top made in all of these high-growth stocks. And there was a few reasons for it. A lot of it had to do with interest rates. That's when interest rates started to rise. And so people started to take that valuation down because of increase in interest rates. And I was in February 2021. And if you fast forward to today, which we're talking early October 2025, that's 4.5 years ago. There's a lot of stocks that are still down significantly from this point.

Right.

And these aren't bad companies. And so when we look at them and I look under the hood, some of these companies that we liked and followed in 2021, and I follow their progression 4 or 5 years on, revenues are up a lot. In some cases they weren't profitable then, but they're significantly profitable now. Exactly. And they have free cash flows and their competitive positioning is higher. What has changed? It's the valuation. The valuation was this before, and now it's X minus that, and it's this. Yeah. And so the third leg is this catch-up trade. The Lazarus stocks. Yeah. The businesses that were good, people left them for dead. Now you see the reacceleration. So that would be the third area that makes this a particularly attractive time to be looking for, looking for winners.

So it's interesting you mention that because, you know, what I'm starting to see creep up media, you talk to just normal man on the street, you know, a lot of these stocks that we follow that are AI-driven or related in some way, they're up a ton already. And so I think it's logical or understandable for, you know, the novice investor to think, is this a bubble? Because things, you know, it seems like, oh, the easy money's already been made here. What are they missing? What is the nuance that's missing from that analysis?

Yeah. So I think that's a simplistic way to look at it. Yeah. You know, my stock went from 100 to 200. Now it's really expensive. Should I take profits? In every case, a stock is not more expensive at 200 than at 100. So you have to be really careful. You know, if my earnings were $10 and the share price was 100, I'm paying 10 times earnings for my shares, right? Now, if the price goes up to 200, but the earnings went up to 30, it's 7 times.

Exactly.

So the, it's actually cheaper at 200 than it was at 100. And that's what's happening in the case of Nvidia. People are look at the Nvidia stock price and says, oh, that stock's expensive. It moved up so much. Is it too late to buy? But if you take a look at the chart of the earnings and you see how they've exploded, Nvidia's not more expensive today than it was 4 or 5 years ago. In a lot of cases, it's cheaper.

Cheaper than it's been in many times in the past. Yeah, absolutely. No, I think that's right. I think, and that's where we kind of come in with investors is I know people don't have the time to kind of dig into these things and understand all the nuances that go along with it. But like Nolan said, we're kind of in the early days of the AI trade and in the business from the business point of view. So, and these companies are very profitable too, which is another point that may have been different in past bull markets like this. But like you said, we want to be careful with just saying a stock went up 2 for 1 and now it's more expensive. It may not be the case.

It's the same with the market. You know, a lot of people assume the same thing. Hey, stock market went up in 2024, 20%, and so it's expensive. And in 2025, that means it can't keep going up. Well, I mean, that's looking at one part of the equation and maybe that's the numerator, but let's look at the denominator. What have earnings done?

Exactly.

You know, business conditions have improved 20% and the price of stocks have gone up 20%. Their stocks aren't more expensive. You really have to be careful. I think also people have to be careful about how they value the stock market. We've said this before and put it in print. I'm not a huge fan of PE ratios anymore. You know, if you look at the top of the market and the top 10, you know, over half of them are tech. And tech stocks you can't evaluate based off P/E ratios. It's just not a good way to evaluate the business. So that's a story for another day.

Right.

But I just think we all have to be careful. I think what we're looking for is, are the trends that got us here, are they still there? Right. And are they strengthening?

Yeah.

And the answer to both of those at this time is yes and yes.

Absolutely. Acceleration is something we're always looking for and we're happy. We happen to be in kind of a golden age of acceleration. So great time to be involved in the market and specifically choosing specific companies and selecting them. The best ones are there to choose. So that's what we're looking to do. Let's change gears, Nolan, and we're going to talk a few minutes about macroeconomics. I know we don't love to talk about that there. We're more interested in who did what. Yes, exactly. We're more interested in the actual businesses that we follow. But we know that everyone's hearing about a lot of these macroeconomic factors. I'm going to put some of that into context. Let's start with interest rates, of course, Nolan. So this is definitely in the headlines. Federal Reserve started to make moves to lower interest rates. Where do we stand today as we close Q3 or the third quarter in 2025 with respect to rates?

So the Federal Reserve Board just met in September. They lowered rates 25 basis points. So now on the low end, The federal funds rate, what are we, 3.5, 3.5 to 3.75 is the new range, right? On the low end for Fed funds rate. I think the bigger news for investors is what the Federal Reserve Board has telegraphed, which is more rate cuts coming. Okay. I think that's what has investors all excited. There's been some knock-on impacts. So the dollar's weak, the US dollar because of it. Yeah, I think that's put a bid in emerging market. Investments. And I think other things too that are non-US dollar denominated, like gold, the gold miners, Bitcoin. So this interest rate thing is a big deal. And it's not just here in the US that our Federal Reserve Board is lowering rates. It's pretty much a global phenomenon.

Sure.

And we talked about our bull market here in the US, but pretty much globally, except for Argentina and India, we have a global bull market, right? And rates are coming down across the globe. Okay.

And so dollar weakness. So you mentioned, it's interesting because it seems like, well, we know from an academic point of view, if the dollar gets weaker, anything denominated in dollars is going to go higher, right? Except for oil. Well, that's got its own dynamics. But how do you manage this macro headline risk? And then how do you think about, you know, say, dollar weakness in terms of how we invest? What are the risks of kind of holding onto dollars? I guess I would ask.

You know, that's scary because all of us are US citizens. So everything we have is denominated in the US dollar, our house, everything that we have. And there's nothing we can do really to control US dollar weakness.

Right.

Has my attention more, Brian, is the things that have inflated because of the dollar weakness. So for example, emerging markets are putting money outside the US. I think particularly developed markets have really done well. And a lot of that is because the dollar is down 10% or something this year. And I think the same thing with emerging markets. And what goes through my mind is if investor attitudes have really changed or if this is a trade. So if the dollar stops going down, will the trade come off? And now all those developed and emerging market returns suddenly turn to losses.

Definitely. Yeah.

It doesn't look like it, but certainly it's not impossible. That's one of the things I think about in terms of dollar weakness. Other than that, I, you know, there's not much forecasting to be done.

No, I agree with that. But it is, it does, and we're going to talk about this a little bit more at the end, but it just puts in relief that you do have, you do carry risk if you just hold dollars.

Huge risk, huge risk, man. It leads me to a different topic, which is, you know, if that's the case, what can you do to preserve your purchasing power? You know, I mean, clearly you don't want your money in a bank.

You don't want your money in a bank passbook savings account losing purchasing power every day.

Every day. It's, it's really, really painful. But also I think that is a reason that gold and Bitcoin are interesting at this point. You know, if you can have your money is denominated or dollars denominated in something that's a fiat currency, which just means the government can change the rules whenever they want. They also can cut the value of it whenever they want. We've seen governments, not here in the US, but other governments cut the value of those US dollars. That worries people. Yeah. Particularly when you see governments doing things that you have not seen them do before. Right. It makes people nervous. So I think having something tangible that can't be manipulated by an outside government or person, I think is attractive to people. And I think that's why gold and Bitcoin has a, has a bid. And quite frankly, they'll probably keep that bid for a while, at least until the dollar shows significant strength over a significant period of time.

And by the way, if you're finding this discussion useful, we would, uh, ask you to like and subscribe to the channel so we can keep bringing you timely insights. And if you have friends out there, and I'm sure you do, who don't know exactly what to do in terms of the market, share this video with them and, uh, and introduce Left Brain to them. We'd love to help them make sense of what's going on out there. A couple of the things, Nolan, we're going to cover this. We talked a little bit about this bubble, this bubble talk that's out there. I like to give a little historical example, and that's the 1990s. We had a huge— I guess it ultimately was a bubble, right? But the market did really well for about 5 years there. How is this different right now, what we're experiencing in the companies that are kind of leading the market? What's the difference between them and what— who led the market in the 1990s?

You know, as you were mentioning that and I'm thinking about differences, you know, I was thinking about the opposite and what rhymes, okay, this year and in 2000 and the things that are similar. It was a tech, you know, the bull market and the excitement was led by the technology sector. So, you know, there's a correlation there. And the first thing I was getting ready to say when you say 2000 is why it was different, because in the year 2000, pretty much if you were a corporate CEO, you had a gun to your head. January 1st, 2000, if you don't have your, your technology equipment updated, right, everything is going to shut because the computers were built for 2-digit year characters and we needed 4. Remember, the Federal Reserve Board also lowered interest rates at the end of '99 into Y2K. Anticipating chaos. So I think there was a lot of pre-purchasing and over-purchasing right into the Y2K buildup.

Okay, interesting.

And now we don't have necessarily the same deadline where there's a certain date specific.

Okay.

But we still are time sensitive and there's a race, and the race is to be the AI winner. Or at least not to be the AI loser.

That's right.

So that's what remind me of the same. There's some galvanizing force that's making people do a lot of spending in a very convincing— yeah. Yeah. So that, that's the sameness.

Okay.

Outside of that, everything else is different. Back in the year 2000, you know, most of the companies were hardware companies. Uh, margins tended to be lower.

Okay.

And then we had this whole rash of these Internet 1.0 companies where they didn't really have business out. Pets.com, Peapod, we talk about so many other companies. You know, you back in the '90s, you just slapped the dot-com on the back of your name and multiples went up many times.

Yeah, absolutely.

So companies didn't really have to have strong business plans, strong management. We weren't valuing companies, we weren't even valuing off revenues. It was like eyeballs. It was crazy. That doesn't exist anymore. 'Cause now, you know, in order to be a company and to be a real company and to go public, you're highly scrutinized. And most of these companies that come public today are already profitable, right? Or on the doorstep of profitability. So I would say one thing right off the bat is the companies are better. They have actually real profits.

Absolutely.

Real business models and real management. So right off the bat, it's different. I also think the, um, the era is different. You know, back in the late 1990s, everything was based off of the internet, and let's call that the technology revolution. I guess it's 2.0, because technically the '60s was the 1.0.

Sure.

We're calling this the technological revolution or Industrial Revolution 4.0, and it's different because AI is going to be so much larger than the internet, right? So first off, you're starting from a better place. Two, I think you're starting much earlier. Okay, much earlier, which I think gives you a huge head start. And I think the third thing, at this point it's obvious how universal AI is going to be. Sure. I mean, it's obvious. Yeah, it's obvious. And when the internet happened, it wasn't so obvious. I mean, other than sending emails. I mean, you could get the disc for America Online and go to a chat room, but it wasn't so obvious. I mean, it didn't make us more productive right away. It wasn't. Yeah, but here AI is still 1.0 and it's already having a meaningful impact.

It is. Okay, let's talk about— like you said, there's a lot of passive indexing out there, and you're talking about some themes that are very strong from a business point of view, what are some of these index, passive index fund investors, what are they missing out on?

Clearly, there's a role for passive investors in indexing. And, you know, clearly there's millions of investors that are using them very well. Question is, are they overusing them? And are there ways that maybe investors could optimize? Maybe it's not always the best thing for all investors.

Right.

If I have a, for example, a newborn and I'm setting up a stock portfolio for my newborn that I know she's not going to touch for 20 years, I might want to try to pick some winners in there knowing that I have some time that if things go right, they could go really, really right.

Yeah.

I think the other thing too is there's a self-satisfaction, a sense of accomplishment, a sense of pride a sense of I did it. When you buy Nvidia 3 years ago, pre-AI, when they were still doing the GPU chips for Bitcoin mining, and the stock fell 65%, you know, because they had a bad quarter, right? And now you look at your statement and it's up 10 for 1, you know. Or Meta back in 2022, same thing, 2023 fell 65%, and now you look, it's 5 or 7 for 1. I think it's the same thing. It's the beginning of AI. So imagine as an investor, you know, you picking your shots, everything you pick is not going to be a home run. No. But if you pick 10, you don't need them all to be a home run. If you have 2 or 3 home runs, it pays for all of them and then some.

That's right.

And so I think that ability to do exceptionally well in a name, and then after you've done well in a name, you can actually control the taxes right, as far as when and how you pay. I think that ability to know as an investor, hey, you know, I was the one that selected Netflix when the market cap was $10 billion and now it's $500 billion and I still own it. There's— I think there's a lot to that.

Yeah, absolutely. Let's talk about a diff— we've talked about this types of investment for a while now, um, but we're going to do it again. And with interest rates starting to drop, It's income security. So, you've been saying this year, and I think last year too, income securities are more attractive than they've been in years. Why is that? And how do rates kind of filter into that discussion?

So, this is a really good and interesting topic and timely. And I say timely because we just mentioned interest rates and we know interest rates are falling. So, investors are going to be clamoring for income and more income, and it's going to be tougher to get. Enter income securities. What are income securities? Income securities are a group of securities that pay out most of their earnings to you, the shareholders, today in the form of a current dividend. That is very different than most stocks we buy that, you know, if we put some money in Microsoft, we're not chasing the dividend. You know, we're buying it today at some price, $300, because we think in the future it's going to be $500 or $600. Exactly. But income securities, we're not waiting to get paid. We get paid today. And this is a group of securities that we follow. We have a model income portfolio, but we're looking for things 7% or more, and we're looking for things that generally they're going to pay quarterly. And we're looking for things, if we can find them, they're tax advantaged. That means instead of paying income tax at my ordinary tax rate, that like I do with my money that I get from the bank or from my CD, I possibly, if I get an income security and it's a tax-advantaged payout, that means it's qualified, right? Then I get the lower rate that are harmonized with long-term capital gains, which at the highest is going to be 20%. But for most of our clients, it's going to be 15%, right? Which is a lot lower than the top marginal bracket at 37%.

Okay. And let's talk about, we talked about kind of the falling purchasing power of the dollar. We talked about also over the last few months, that money in checking accounts especially, but also in savings accounts, isn't paying much money to you on top of it. So, what is the risk of staying put? I know there are some people who are risk-averse or just have money building up in the bank, whatever the reason may be. Talk to the investor out there that who's doing that. What's the risk in holding onto cash like that?

Unbelievable to me how many investors are okay sitting on cash idly. It makes me pull my hair out, really. I mean, it does. I haven't found any really compelling reason for people to be in cash. I mean, clearly if somebody has some identified upcoming expense, sure, over the next 12 months that— and they know they're going to use their cash for— so for example, if a client is doing a— they're updating their home and they know the home improvement project's $150,000, then clearly that should be money that's still—

$250,000.

If you're gonna buy a car, it's $100,000. I mean, you need that cash. But what we're talking about is for people with no plans on the horizon to use cash that either have had it sitting or a lot of cases have been building cash, right? With no plan to do anything with it. Then yes, they want to absolutely take some action, particularly if they're getting less than 5% on their money. You know, remember we just talked inflation is 3%, so you want to earn at least 3%. So your $1,000 today could buy what $1,000 did a year ago. Yeah, you need at least 3%. But most of these accounts are taxable. So that's why I'm saying 5% is a minimum.

So after tax, that's going to be about 3%.

Okay.

Well, we definitely wanted to point you to our income securities booklet that's out there. We put that out about a month ago, which talks about a number of the different types of income securities that we like and also a number of the different types of investors who would benefit from purchasing income securities. So we would definitely steer you that way. Take a look in the description below. We'll have the link where you can go and download that exclusive booklet. But with that said, Nolan, we're going to close things out here. Thank you for walking us through the third quarter. And thanks everyone for watching. Here are some big takeaways. Markets are stronger than many of the headlines suggest, but there are risks that remain. There are opportunities in individual stocks and certainly in income securities and in taking a more deliberate approach to your portfolio. Like we said, if you want to dig more in depth into the income opportunities, Download that Income Securities booklet. If you're ready to take the next step in growing and protecting your net worth, Nolan, we'd love to have a conversation with the viewers out there. If you've been watching us for a few years, we would appreciate the chance to put a voice to the name and book a time with us for a portfolio review. Let's explore the ways that we might be able to help you. Finally, if you found this helpful, please hit like, subscribe, and share for the video. It helps more people discover our content. And stay informed in a rapidly changing market. Nolan, thanks for being with us. We want to thank everyone for joining us, and we'll see you on the next one.