Episode 94: Monday Blues

Transcript

Hello and welcome to the balanced wealth podcast. My name is Gavin DiStasi.

It’s pretty rare to hear me or Jarrett ever discuss one day in the markets. In fact, you are much more likely to hear us deride the very idea of paying attention to a one day move, in any direction, of any market. And for good reason.

But I have to admit that Monday was no ordinary day in the markets. No, check that. Maybe it was so ordinary, actually, that it struck me as quite extraordinary. Not at first mind you. At first it just seemed like another day with a fairly substantial move in one of the indexes. Accompanied, of course, by the standard hyperbole from the financial media – meaning wildly over-reacting to a short-term story, in the pursuit of the kind of sensationalism that ultimately sells advertising.

But as I went about my day and continued to watch the ticker unfold, I began to find the narrative of the day rather more interesting than usual, to the point where, by the close of the market, the idea for this podcast episode had begun to percolate in my mind.

Now if you’re not someone who watches the markets on a daily basis – and kudos to you if that’s the case, by the way. I’m sure your life is much better for it – then some background about what happened is in order.

Essentially, the Chinese startup Deepseek released an AI chatbot that experts say holds its own against, or even surpasses those from industry leaders like OpenAI, Meta and Google and the like. And they say they did it with far less computing power than its competitors, using inferior Nvidia chips due to the Biden administration’s ban on exporting cutting edge technology. Because of this, it’s rumored that they achieved this feat at a fraction of the cost thought to be necessary to create these kinds of models. The number being thrown around was less than $6mil dollars, a pittance compared to the hundreds of millions spent by other companies to achieve similar results. And at a time when many companies have been pledging to invest billions more to improve their models, these results seemed to throw a big-time wet blanket over the AI fueled euphoria that has been powering the stock market for the past year or two.

And as the story began to sink in on Monday, there was a collective freak-out across the tech industry, as you can imagine, which bled into the broader market as well. Chip stocks, like Nvidia and Broadcom, which have been the darlings of the in-crowd for some time now, got hammered.

By the end of the day, cooler heads had seemed to prevail to a certain degree, with the Dow Jones Industrial average actually eeking out a small gain. But the tech-heavy Nasdaq lost nearly 3 ½% and the aforementioned chipmakers, lost big. Nvidia and Broadcom were both down more than 17% by the end of the day, and collateral damage had been inflicted on a number of other companies as well.

Now there are a number of things to note about what happened here. First, we don’t actually know if the story about how the results from Deepseek were achieved, is accurate or not. Both the amount of money spent and the computing power used, have not been confirmed, so it is entirely possible that the gains they’ve made were not as impressive as first thought.

And it certainly appears that the idea that we can somehow create strategic advantages for the U.S. in the race for technological superiority by restricting exports of our cutting edge chips seems misguided at best. And I would think you could extrapolate that to provide additional evidence, if any were actually needed, that tariffs are a bad idea too, but that’s a story for another day.

Ultimately, the idea that somehow this all means that we no longer need powerful microchips, or computing power, or that companies are not going to continue investing billions of dollars in those technologies to continue to advance the push for better AI models just doesn’t jibe for me. I mean, does it really seem likely that Nvidia went from being blu ray to Betamax overnight? Seems like a stretch to me. And as I’m recording this, both the Nasdaq and the chipmakers have seen a nice bounce back in their share prices, as rational folks have had a moment to digest the news and calmer heads seem to have prevailed, for now.

But you know what the biggest takeaway is for me from all of this? Why I decided to write about this one day event in the first place? Because it doesn’t matter.

Sure it matters to the CEO of Nvidia, I suppose. Or, if you put your entire life savings in Nvidia stock like an old acquaintance of mine recently told me they did, much to my horror – then it probably matters. Like a lot. But for most of us, it’s just a good story of a day in the markets along the winding path to your financial goals.

And, of course, we don’t yet know how this particular chapter of the story ends. Maybe it was just one day in the continued march upwards of a bull market run fueled by AI innovation. Maybe the losses will all be erased by this time next week and I’ll continue to have to go to parties and hear people tell me about how they’re getting rich by gambling wildly on one tech stock, and have them ask me why I don’t do that for my clients.

Or maybe, it was a harbinger of things to come. The start of a bear market, as the reality of the irrational exuberance of this particular bubble begins to set in. If it’s the former, well we’ll probably all forget about it soon enough as the news cycle rumbles on to it’s next sensational story.

But if it’s the latter, well then, I think that would be informative.

You see, when you’ve been doing this as long as we have, you come to understand a few irrefutable certainties. The first of which is that the catalyst for the end of a bull market or the beginning of a sharp downturn, is hardly ever the thing you saw coming.

It’s why the questions “what do you think will happen in the market in the next year or two” and “is now a good time to invest”, which, by the way, are also the questions we get more often than any others, can be so maddening. Because no one knows what’s lurking around the corner, or what’s going to happen in the next few months in the markets. There’s always the potential for something no one saw coming, hiding in plain sight.

Now I don’t know if this Deepseek AI story is a real boogie man or just a blip, but it certainly was something no one saw coming. And perhaps that’s the reason it spooked people, and caught my attention as well. Because the folks who’ve been doing this a while saw something familiar, the potential to be that thing out of left field that every so often you look back on and recognize as the catalyst for a shift in momentum.

At the end of the day though, the bottom line remains the same for those of us who are committed to sound, long-term investing. Have a plan, stick to it, and don’t let emotions or premonitions get in the way.

Because if you can do that, then as I said before, it just doesn’t matter. And this story will simply be another interesting side note on the long journey towards achieving your financial goals.