Most investment advice these days is rightfully focused on index/passive investment for the bulk of portfolios. That works especially well if your time period is long enough.
But if you had bought the S&P500 in March 2020, the peak before the dot com bubble pop, then it took over 7 years for the market to get back to that level, or 13 years when adjusted for inflation. Those who instead invested post dot com crash (Oct 2002) got 16-17% returns until 2007, and that’s when the next crash arrived.
We currently know three things.
1: There is definitely a bubble, and by any metric we choose the AI-mania fuelled valuations are sky-high and unsustainable in the long term.
2: We have no idea when the bubble will stop, and trying to figure that out can be very expensive as it could rise for a lot longer or crash at any time.
3: There were only a handful of winners post the dot com crash, and all of them could be invested into at very cheap prices in, say, 2002. Amazon’s stock price, for example, went up 16x between October 2002 and October 2007, pre-GFC. Apple was even better. After bubbles pop then many investors turn away from the market, and smart ones know it’s time to take the cash out and start investing.
I’ve recently read two books that are new, based on the authors’ years of investing through bubble/bust cycles and very enjoyable reads: Jeremy Grantham’s “The Making of a Permabear” and Pulak Prasad’s “What I Learned About Investing from Darwin“
Grantham is founder of GMO, who provided one of the world’s first index funds around 50 years ago. I was lucky enough to hear from him when I was at business school in around 1997/1998. A lot of his perspective contributed to my own perma-bear approach to investing.
GMO look at historic returns by category of asset (e.g. US large stocks, Emerging Value stocks), and forecast 7 year returns – long enough to look through any bubble and recovery to see where the natural level of the market should be. As at 30 June 2026 their 7-year real return forecast for US large stocks was minus 5% to minus 8.1% per year, implying a correction to 30-45% under today’s value. (The low figure of 5% is based on a low interest rate environment). The last one of these I saw was as at April 30, and the market went up a lot since then, a good reminder they are not predicting how far the market will go up or down in the short term. (GMO’s website lets you subscribe to these).
Prasad started Nalanda Capital with comedic timing 0 in 2007 just before the GFC. Nalanda had smart investors (I suspect Yale was in Nalanda as well as GMO) who stuck with them thorium some serious devaluations at the value fund picked up decent holdings in a relatively small number companies on the India stock exchange. Prasad seeks to avoid big risks (and hence also big bets), big high quality (consistent performance through cycles) at a fair price, and “be lazy” , or hold forever.
Punakaiki Fund and the two Climate VC Funds invest at the beginning of company journeys, but we have long absorbed these lessons. We don’t like high risk, even as we are at the higher risk end of investing. While we can and do lose sometimes, we generally have very little investment running on hyper-speculative companies. We look for companies that can generate high-margin revenues, and do so reasonably early, that are either intrinsically sustainable or have a strong group of backers, and the ability to lower running costs.
We look for high quality companies, and fair value when investing- to both us and founders. New Zealand is well advantaged here, as the cost to get going and deliver the first results is substantially lower than what we would see elsewhere. We have several companies facing the decision whether to continue to sustainably grow organically or to accelerate with funding, and we want to be ready before, during and after any market crash to provide them the ammunition to win.
Lance Wiggs 