Al, Bubbles, and the 100-Year Family: Why Diversification Wins | AWM Insights #249

In this episode of AWM Insights, Justin Dyer and Mena Hanna tackle the complexities of artificial intelligence and its sweeping influence on both public and private markets. They break down the hype, explore the shifting fortunes of major sectors, and share lessons from history on market concentration, bubbles, and the power of diversification. With a clear focus on long-term, generational wealth, Justin and Mena offer perspective and strategy for families seeking to navigate today’s dynamic investment landscape. Tune in to hear seasoned insights on avoiding costly missteps and investing like a pro in an era defined by creative destruction.

Chapters
(00:00) Setting the Stage for AI in Markets
(01:36) Public Market Impacts and Major Headlines
(03:23) Market Efficiency and the Challenge of Timing
(04:52) Lessons from Historical Market Concentrations
(06:26) The Power of Diversification
(11:50) True Diversification and Private Market Access
(13:33) Key Takeaways for the 100-Year Family

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Creators and Guests

Host

Justin Dyer

Chief Investment Officer and Chief Operating Officer at AWM Capital

Host

Mena Hanna

Senior Investment Analyst at AWM Capital

What is AWM Insights Financial and Investment News?

A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.

Justin Dyer: Hey everyone.

Welcome back to another
episode of A WM Insights.

It's your host, Justin Dyer, chief
Investment Officer here at a WM joined, as

always by my co-host, Mina Hana and Mina.

Today we're gonna talk about ai.

Straight up.

Uh, but you know, as I always like to do,
I like to expand and talk about nuance.

Uh, AI is, is a massive topic, right?

It's, um, very popular and
prevalent in the public markets.

It's very popular and prevalent in
the private markets or specifically

within the world of venture capital,
um, and is, and is impacting.

Those, uh, those markets in
positive ways, negative ways.

I mean, you know, you, you, you, uh,
take your pick and you can probably

find an argument on, on either side.

Uh, but today we're,
we're gonna try to help.

Listeners understand our perspective
and digest what's happening.

More so on the public market side
of things and the impact, good, bad,

indifferent, on, on what's happening,
and kind of more specifically, hey,

is this something we should be taking
action on or how, how should one.

Digest, react, make any movements
with respect to AI specifically,

uh, in the, in the markets today.

So, um, as always, kind of setting
that, that table, setting the stage,

Mena Hanna: what

Justin Dyer: is going on?

What are the big headlines?

Again, you know, we could probably
talk for an hour about what's

going on in, in, uh, with respect
to ai, but high level, top line,

Mena Hanna: what's

Justin Dyer: going on in, in.

Mena Hanna: Public

Justin Dyer: markets
specifically with respect to

Mena Hanna: Yeah.

Tons of headlines.

They're, they kind of sit in two buckets.

The first bucket is a lot of these large
businesses are laying off employees.

Shareholders actually like that
because it makes these businesses more

profitable, cuts out costs, uh, but
sometimes it impacts long-term results.

We'll see these companies are
kind of making bets that they

could do more with less and we'll
see if they can execute on that.

Obviously not great for the labor market,
but sometimes actually good for companies.

The other side of that is companies that
are focused on software as a service SaaS.

You can think about companies
like Zoom Surface, uh, ServiceNow.

Netflix is sort of in that camp,
but they have licensing Adobe.

Those companies, these software
focused companies, have really

taken, taken a bath because AI
is presenting a problem for them.

From the standpoint of why
would I buy Adobe when I can?

Claude Vibe Code, a similar software
that's for free that I can use forever

without having a license and without,
you know, giving anyone else money

and just using tokens to create it.

So it's sort of shifting what software
is going to look like, and, and

yeah, that index is down 30% in the
last six months, which is intense.

Yeah, it's super intense.

Um, so yeah, that's, that's what's going

on.

Justin Dyer: Yeah.

Well, and, and that's the big headline,
the, the quick interpretation of it.

Mena Hanna: it, you know,

Justin Dyer: At least from our perspective
is, hey, markets are efficient.

And so they're taking this information,
digesting it, and reflecting it in prices.

Now here's the, the wrinkle, and I think
the piece of this, this, um, perspective

or belief that that often gets overlooked.

We're not saying that that is 100%
correct, we're just saying out guessing.

The markets on that is
incredibly difficult to do.

It's a losing proposition.

If you go back and think about
outguessing markets on, on a kind

of a number of questions, right?

Trying to time it, trying to predict
the future, et cetera, et cetera.

Like all those things are within
this kind of market efficient,

market efficiency type conversation.

Mena Hanna: conversation.

Justin Dyer: But let's, let's
take that a step further.

What?

Yeah.

Let's pull some data to support that.

Does it make sense given all the
money that is chasing ai, the

concentration that AI companies or
the Mag seven or make up within the

index, uh, you know, both what is,
what does history tell us on the runup?

Has this happened before?

And then even on the backside of,
of some of these things, which

I'm kind of giving the answer to.

Mena Hanna: but

Justin Dyer: What does that do and what
does that most importantly do to, to the

idea of the a hundred year family and
supporting priorities for our clients?

Mena Hanna: Yeah, and if you kind
of go on Reddit, I think the take

is going to be buy the dip row.

Just do it.

Close your eyes, buy the
dip, and move forward.

That works until it
really, really doesn't.

Uh, railroads, we, when we were preparing
for this call, we were kind of talking

about railroads, railroad stocks
occupied 60% of the US stock market in

the late 19, in the late 18 hundreds.

I know that's a long time ago, but that's.

60%.

It's a

ton.

It's a ton.

It was like our economy today,
it's under half a percent,

so.

That is just a shift.

And there are actually, there's
a company that has a hundred

billion dollars market cap.

So there are still large companies that
the business of railroads didn't die.

We still see trains,

Justin Dyer: Good old Warren Buffet loves

Mena Hanna: 'em.

Yeah, Warren Buffet loves them, but

Justin: but

Mena Hanna: the

economy changed.

There are new technologies that are new
sources of travel, of transportation, so.

The economy grew, it matured, developed.

Railroads didn't really go anywhere,
but the rest of the market's

growth far outpaced railroads.

So if you consistently bought the
dip in the 18 hundreds, early 19

hundreds, you eroded your family's
hundred year wealth and you probably

wouldn't be working with us today.

So that is, that that's a good use case.

Like these things change.

There are, there's creative destruction
that happens and if you focus on the

wrong asset class at the wrong time,
you can get wiped out in certain

situations.

And

Justin Dyer: what you just said is a
much more interesting, eloquent, uh,

you know, maybe even entertaining.

Version of diversification.

Yeah.

That is what, why diversification works
the term maybe you think it's boring, you

hear it all the time, all that good stuff.

Diversification is actually incredibly
powerful because it's the responsible,

high probability way of capturing what
markets are actually doing and what.

Innovation is doing over the long term,
what this creative destruction does, what

companies competing with one another does.

Right?

You.

Diversification allows you to
capture the power of all that without

overly concentrating in one way,
shape, or form, and really doing

so in a, in a way that you, you
should have confidence in meeting.

What's most important to you?

Um, kind of bringing that to a
more tangible example, right?

You talked about railroads.

There's, it's not, we, we don't just
have to go back to the 18 hundreds

to, to have examples of this.

Um.

Maybe that's a really good,
um, uh, uh, comparable for

concentration in the market.

But there's booms and busts.

Sometimes they're concentrated
in specific industries.

Dot com uh, is a version of that now.

It was so small at the time.

It was not as much of a concentration,
but it was meaningful where,

uh, on the backside of the.com

bubble.

If you were overly concentrated in
technology and then rode that out or

bought that dip, you didn't recover fully
for 15 years from the peak of the.com

bubble.

This is using NASDAQ
composite peak of the.com

bubble.

It took the NASDAQ 15 years, 2015.

That was 10 years ago to fully recover.

And so that's the flip
side of this, right?

Yes.

You get these crazy run-ups, a lot of
times they're associated with bubbles.

But then on the backside, the, the true
damaging part of overly concentrating

in a, in a bubble or a specific sector
or just a specific, uh, company, right?

Or stock.

You can, you can say the same thing,
whether we're in crazy market environments

like we are right now with respect to AI
or bubbles, et cetera, is what happens.

When you get that wrong, right?

You, again, you're effectively trying to
say, I'm, I'm smarter than the market.

I can out guess the wisdom
of the crowds and the data so

shows that that's can happen.

But it's a very low
probability, uh, event.

And then the, the damage that can
be done if and when you get that

wrong is incredibly substantial
and puts that a hundred year

family at risk, most importantly.

Mena Hanna: Totally.

And I, I would reframe it,
and I'll use another example.

Financial Services, 2007,
financial services represented

30% of the US stock market.

Today it's 12%.

If you invested in financials in 2007,
it took you 10 years to actually recover.

Obviously the.

Great recession tanked.

A lot of those banking stocks
and a lot of those companies

took you 10 years to recover.

Today it only represents 12.5%

of the index.

You're up, you're in the
green, you made a return.

That's the wrong way of looking at
it because you just went from 30%

of the market to 12 and a half.

Everyone else around
you made way more money.

So I know that's a little bit
of a keeping up with the Jones'

mentality, but when you think about.

Investing in the market
and realizing a return.

It's about keeping pace with everyone
else around you and ideally outperforming

slightly by, you know, doing all of
the right things and being the casino.

But if you make the wrong move, if you're
overly concentrated, you are wiping off

a serious amount of your return and of
your wealth, which in a situation like

this, if you're overly concentrated.

You're not making that back.

Uh, yeah.

Your position in the market is
a third of what it was before,

Justin Dyer: Yeah,

that's right.

I mean, look, we, we we're not gonna say.

The same thing is going to
happen today with ai, that,

that we're not gonna predict

Mena Hanna: future Yeah.

that.

Justin Dyer: Yeah.

But history is an incredible teacher.

Uh, success leaves clues.

We have a sense that that markets
behave very similarly over time.

History doesn't repeat itself at rhymes is
the, the great old, old quote or comment.

Um, and that's what we use to
apply or what, how we think about.

Market markets specifically and
investing for that a hundred year family.

What is the data say?

What is what?

What is the academic literature say?

Mena Hanna: site?

Justin Dyer: Does it make sense to try
to time markets over the short term?

No, that's a, that's a very, uh,
low probability, uh, outcome.

And so, uh, again, what's most important
to us is that long-term, a hundred

year family, we know the behavior that
has led to success in the past and

have high confidence that will lead
to success in the future and getting

caught up in hype cycles and, and, and.

Timing, et cetera.

We know it.

It is just not a great recipe for
success and likely one of those

bad decisions that can, that can
be substantially costly to your

a hundred year family.

Mena Hanna: Yeah, and I know you made the
comment that diversification is boring.

We're nerds so we like it, but maybe,
maybe our listeners and viewers don't.

The interest, the way to make it
cool, in my opinion is there is

so much destruction going on right
now, so much innovation going on.

The way that you actually access this
innovation is through diversification.

There's a surface level way of looking
at diversification, which is, I'm gonna

hold every single sector in the market.

And there's a more sophisticated way
of looking at it, which is I'm going to

invest in private markets holistically.

I, I'm going to invest in venture
capital, I am going to access

these best, brightest founders
businesses in the early stages where.

where.

Many people can't, and it's, it's an
access game, but I'm going to participate

in these businesses because I will hit
on an anthropic, I'll hit on an open ai,

I'll have access to a SpaceX, and that is
a way that you can sort of not only keep

up with the market, but ideally outpace it
and make up the dollars that potentially

might be lost in the public markets from
time to time when you get these shifts in.

Technologies and when you, when you
realize that creative destruction.

So it is also super important
to think about how are you truly

diversifying accessing private markets?

All of the companies that I
just stated are still private.

So if you're buying an index fund,
you're not getting access to them.

Uh, now it doesn't also make sense
to access them in the right way.

You have to be very thoughtful in how
you invest in private markets, but.

Not investing in private markets and,
and avoiding those holistically, which

we've seen time and time again, is, is
not really the comprehensive way of being

Justin Dyer: Yeah, 100%.

I mean, and, uh, to your point,
um, or what you were alluding to,

like, that's a, a whole nother
conversation around accessing private

markets in the, in the right way.

Um, well, cool.

So we'll wrap there.

You know, uh, kind of quick takeaways.

Diversification really is
the only way to navigate.

Markets like this, market,
markets of concentration,

markets that are more volatile.

Uh, it, it's the way to support
your a hundred year family

and really invest like a pro.

The, the reminders just avoid
the, the short-term noise for,

for long-term investing success.

And we'll leave it, leave you with that.

Definitely keep questions or
topics you want us to discuss

coming.

Mena Hanna: 6 2 6 8 6 2 0

Justin Dyer: 5

5.

Definitely text that number and we
will, we will get it on the, on the

agenda here and, and give you our take
our thoughts, how we could think ab

think about, um, answering a question
or just digesting a, a general topic

that might be of interest to you.

Uh, but until next time, own your wealth,
make an impact, and always be a pro.

Thanks for listening.