TDI Podcast: The Right Mix (#959)

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1:33Andrew Horowitz:records are breaking they're calling it software amageddon digging into the precious metals what's going on there and wake up diversification fans we have something for you all this and much more on episode number 959 of the disciplined investor podcast

2:09Andrew Horowitz:And welcome to another great episode of the Disciplined Investor Podcast. Hey, I'm Andrew Horowitz. Welcome to the Disciplined Investor. And thank you for your efforts in becoming a disciplined investor. That's what we do here. We educate. We talk. We spend a lot of time on different parts of the market. Things that are going on now and things that may be going on in the future. But all of it is meant to make sure that you have the tools and techniques to do what you need to do to get yourself to that level of financial security in the future that creates independence. You don't have to worry about things.

2:41Andrew Horowitz:You're not freaking out. We've all seen it. Right? We've all seen where people have spent their lives too conservatively or too aggressively. And in the end, they're really in bad shape. What we want to do is be maybe somewhere in the middle of that. Now, there's nothing wrong with getting very wealthy. There is something wrong with making some very bad moves and missteps where your future is in peril, where you don't have enough money to even actually do what's right for yourself to invest in a way that is, I guess, keeping ahead of inflation and keeping ahead of the cost of living in total, right?

3:20Andrew Horowitz:Inflation is just one part of it. The fact of the matter is that when we look at the overall amount of money that we need in the future, there is a lot to talk about of looking at what we're doing now to get there. What I mean by that is I talk about the future you and the present you. This is one of those cases when we want to start looking around for what we're doing and if things have changed enough to make some changes for our future. Right now, there's a lot going on in the markets that are really affecting things. It looks a lot worse from the outside than it actually does right now on the inside.

3:55Andrew Horowitz:A lot of times when I talk to you about there's only a certain handful of stocks that are leading things to the upside, what ends up happening is that markets look good, but at times we've talked about the sinkhole, where that underneath the surface, it really isn't that good. However, right now, it's pretty much the opposite. And what I mean by that is that the things on the outside that were driving markets to new heights, the technology shares in particular, the software shares, the telecommunication, all of those are actually not doing so well. However, underneath all that, the other 400 stocks or the 380 stocks in the S &P 500 are actually doing fine.

4:43Andrew Horowitz:What they're calling right now is this software-mageddon, like Armageddon, but in reality, again, only certain areas of the market. Look, the S &P 500 software and services index over the last, I don't know, week or so is down like 13%. Blowing out more than about$800 billion in market capitalization, and these are driven by just a few names. right we're looking at companies like Intuit ServiceNow Oracle which just cannot get ahead of itself we are so happy that we sold them last quarter before this whole thing or the quarter before that I think it was before all this happened we got the quick up on the stock after that wonderful earnings announcement remember the stock was like 30 percent in one day they had not only an earnings announcement but a double whammy and benefiting them where OpenAI said you know we're going to give him like$300 billion.

5:37Andrew Horowitz:And we were like, oh, what? Interesting. We like it. We like the stock action as owners of the stock. But at that moment, we were like, hmm, where's all this money coming from? It sounded much more like a hope to be than a reality. And that is what started the ball running in the wrong direction, where everybody started getting concerned about the spend. So relative to the overall S &P 500, the software group, that entirety of the software group, has now put in, listen to this, it's the worst three-month performance up until just this week since May of 2002, 2002. And that was during the major fallout of the dot-com bubble bursting, right?

6:30Andrew Horowitz:We know about that. and then we saw on top of that this whole, I don't even know what we're going to call it from precious metals, but these areas that look like these monstrous moves, it did spread out a little bit, but generally speaking up through, I would say the mid part of the week, like Wednesday, it was really concentrated in some of the bigger names and the names that have been really taking on the chin of late. Some of the risk, the super risk and high alpha, Names were getting hit. And then on top of that, it was the concern over certain software and what's going to go on in the financial, certain area of financial news, data gathering, legal.

7:17Andrew Horowitz:And that happened with an announcement by Anthropic, the AI company that came out with a legal tool, a tool to utilize in the legal profession that they said, wait a minute, they're going to do it there. What about other professions? And then all of a sudden, many of the companies that were publicly traded in the area, which we knew about, that was collecting data and doing news on that collected data almost through a full AI experience, got smacked. I don't think there was any surprise there.

7:49Andrew Horowitz:But some of this AI situation is starting to roll over and the excitement rolled over in a big way into things like gold and silver. and silver in particular and many other precious metals that were deemed to be industrial use. And the case was made that, well, we can take silver and we can use it for chips and all these other things. I wrote a note to clients and kind of an internal piece partially. It was kind of a two-part piece because we try to put down a lot of times, and I've talked about this, right, that a goal, a resolution, is nothing more worth than the paper it's written on. But if you don't even write it to paper, it's not worth anything.

8:34Andrew Horowitz:But as long as you do write it at least to paper, it's kind of a commitment. It's a historical reference. It's something that you can say that I did flush out. And I wrote a piece on the wacky world of precious metals. And I started off with thinking, You know, if Shakespeare wrote The Merchant of Venice today, he probably would tweak one of the lines to say something like, instead of all that glitters is gold, all that glitters is not gold or silver. But apparently all that glitters is gold until the Fed chair's news hits and it turns into lead overnight. I mean, the recent market action in precious metals, and let's not forget crypto, by the way, which we're seeing what's going on there, has nothing been, nothing, nothing, nothing good.

9:23Andrew Horowitz:It's been brutal. And it appears that the catalyst, now whether or not this is the actual reason and rationale, but the catalyst was President Trump's nomination of Kevin Warsh to replace Jerome Powell as the Fed chair. Now this was announced when? Friday, right, the 30th of January. And I think the pick is being interpreted as a signal of a more hawkish Fed, which, by the way, is exactly opposite of what was going to be the case of the next pick. When we look at all the other names that were in the hat, whether it was Reader or Hassett, Waller, these names were said to be, well, they're very dovish, and they'll be pushed around, and they want to reduce rates.

10:11Andrew Horowitz:But the idea now, the thinking, is that Warsh may be a little less aggressive with his rate cuts that many have been hoping for, and maybe that was plugged into the market analysis for what to expect over the next year or so, which basically what it do, what it do, it flipped the script, right? The script just said, okay, we have this going on. This is our narrative. This is our rationale. This is our reasoning. We think that rates will be lower. And with that in mind, what happens? Well, when rates are lower, valuations can be higher. We use a risk-free rate of returning calculation, our terminal value of stock valuation.

10:50Andrew Horowitz:And when we do that, whether it's a dividend discount model or an earnings discount model, all that is much higher. Now, all of a sudden, Kevin Warsh enters the picture, which I have some thoughts on that, by the way.

11:08Andrew Horowitz:But the idea before he was confirmed, or he's not confirmed yet. picked, appointed, at least at this point, was that markets are going to be running on easy money expectations. And add to that dynamic,

11:24Andrew Horowitz:this sell-off has also likely served as a convenient excuse for some profit-taking by the FOMO and MOMO crowd. Because these folks piled into assets during that parabolic move, and probably we saw that exhaustion gap that one day where gold moved up to like 117 or whatever it was an ounce. That parabolic move probably exhausted itself after months and months and months of relentless upside. So here's something to think about because here's the headline that you want to kind of remember. This is something you want to embroider or burn into your head. January 30th, 2026. Yep. The date is now officially the worst single day for silver in modern history.

12:21Andrew Horowitz:I mean, silver just fell apart. COMEX futures on silver dropped about 31 % on that day, settling in around$78, right? And at one point in the day, it was even uglier. We're talking about a drop from the top to the bottom, about 35 % with prices dropping and dipping into the mid-70s. They retraced a bit and went back up, but then came back down again. And remember, this is coming literally days, days, after silver blasted to record highs over$120 an ounce was that number that was like, when I saw that, I was like, oh, man, if I've ever seen an exhaustion gap on a parabolic move, this is it. so that huge chunk of that parabolic move gone just like that wild move there's no question there's some really cool things to watch here and learn from because i had meetings i think i mentioned this once before on the show i had meetings with clients that were calling me about what about silver i'm like listen you're late and if you own it let's take some profits i had clients call me about buying the stock of silver companies.

13:31Andrew Horowitz:I'm like, no, not right now, please. This is so extreme that the only possibility is for maybe a little more upside, but this downside to really kick in and reality to bite and get caught up in, for example, the silver stocks, which have been obliterated, by the way, since. sense. Now, when we look at this particular market sell-off when it comes to the precious metals, got to look at historical perspective for a moment because this goes back to the legendary Silver Thursday. I don't know. Maybe they could call this Silver Friday. I don't know. But when we look back to when this happened the last time at this extreme, it was considered Silver Thursday.

14:21Andrew Horowitz:It was March 27, 1980. That was when the Hunt brothers, if you don't know about the Hunt brothers, they tried to corner the market, right? And things happened with margin and just had to bust out of everything. And that collapsed it. Silver fell around 33 % during that key session from about$16.25 to$10.80 an ounce. with a multi-day panic loss of over 50 % because there was a lot of forced selling that went on and just total chaos, just absolute chaos back then. Now, in the 1980 crash, it was systemic because it was marked and sparked by major regulatory changes. But futures data and coverage from most sources today They show that the 2026 event now holds the record, bravo, for the single largest percentage decline ever.

15:18Andrew Horowitz:Wonderful. Not really. Pretty wild. And by the way, it wasn't just silver. Gold was down by 10%. Platinum crumbled by 19%. So, yeah, we're looking at this, right, with this trigger. was probably kicked off by the early morning leaks and confirmation of Warsh's nomination. Yeah, it was leaked early in the morning. Things started getting a little wonky. The U.S. dollar was spiking, right? Which, if you look at dollar price metals, much greater cost for overseas buyers. But the real carnage came in the afternoon in a session late in the U.S. It was leverage again That's what we have found out at least Leverage on Papa Leverage on these commodities They piled into silver and gold During the recent mania And what happened?

16:18Andrew Horowitz:They raced for the exits to lock in the profits Which then sparked Cascading liquidations and margin calls And the classic overcrowded trade Unwind I mean this is There's nothing new here But why I want to talk about this and why I think it's extraordinarily relevant at the beginning of 2026 is this is a lesson that we need to not only learn, but master. We need to master this. If we're going to be disciplined and do the things that we need to do to get us in the right place in the future, we need to make sure that we don't get sucked in to either the upside run and hold or fall in love with something and hold through all of the pain.

17:02Andrew Horowitz:Now, gold also, as I mentioned, was getting hit roughly about 10 % to 12 % to the close. That was last Friday. It was clearly the wildest session in decades. Although gold didn't match silver's extreme. Bitcoin, which has also been a part of this whole debasement hedge crowd theme, is now down about, what, 30 % from where it was just about two weeks ago. But in fairness, there still seemed to be some interest. After that big blow-off top, that exhaustion top, the gapping of a parabolic move that happened into a week and a half ago or so, we saw that drop happened, and about two days later, there was a big move.

17:48Andrew Horowitz:In fact, gold had the best two days in history, which is pretty amazing. Two-day run, bouncing back from the sell-off. Bottom line, markets are pinning this volatility squarely on the Fed chicken, pick, not chicken, Fed pick, and what it implies for future policy. Now, with that said, I want to talk about Warsh. I think it bears some flushing out of what I think of him. Before we do that, I want to talk for a second about interactive brokers again. Do you know, here's a question, do you know what's driving your portfolio's performance? Do you know that answer? Ask IBKR. Ask IBKR is a breakthrough AI-powered tool from interactive brokers that lets you interact with your portfolio using plain English.

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19:10Andrew Horowitz:So what do I think? What do I think about Kevin Warsh? You want to know what I think? I actually think he's a solid choice. I'm a little bit of a deficit hawk. I think he is too to a degree, or he has been in the past. And I think that's one of the things that's really haunting markets a little bit right now. I think he's much better than many other names that were being bantered around. I think most of them were just total kiss asses, brown nosers that were trying to get to position by saying what they needed to say. And who knows, maybe President Trump saw all through that, realizing that we need somebody.

19:46Andrew Horowitz:We need an adult in the room, in the area of the Fed, not somebody that's just going to be a patsy. someone who would be easily pushed around and maybe even less independent. And Warsh has a real track record as a former Fed governor. And yeah, he has a reputation for being hawkish on inflation back in the day, and he pushed against over-easy policy, criticized things like the bloated and crazy balance sheet numbers, the mission creep that we saw over the last, actually probably during COVID was the greatest amount of mission creep where they were lurking on, you know, DEI. Like, wait a minute, you're the money guys.

20:32Andrew Horowitz:Stay away from DEI. That's a whole different department. Now, even if he's aligned somewhat with calls for lower rates recently and to support growth amid, you know, even amid these productivity gains that we saw, I think, is my opinion, he comes across to me as someone who cares for and values the Fed's discipline, their independence, more than being a total yes man. And that's what I like about him. I think that's a real benefit. And this kind of person with a backbone, I would hope, can restore some credibility to the institution rather than turning it into a political tool. That's my hope.

21:21Andrew Horowitz:Yeah, yeah. But there's a question. Here's the thing. this black cloud that's potentially holding itself over all of this, and that is, does President Trump actually stick with Walsh if the market turbulence keeps up? Because you can picture the options, right? You know, does he stay the course, President Trump? Does he backpedal it a bit? Maybe he's going to reach out to, I don't know, A few allies in the Congress to gauge how rough the confirmation path may be. Or even more quietly, does he signal to senators that support him to just, you know what, pump the brakes. If things in the market stay squirrely like they are, maybe, you know what, let's not do this.

22:14Andrew Horowitz:Let's say I appointed, I tried to put somebody in with a really good record, but in the end, they're not going to get pointed. So I got to come up with a second one. And maybe my second one now becomes Rick Reader or back to Hassett again. We've seen this movie before. This isn't so far-fetched and you know it. You know it. I mean, he's pivoted when markets through tantrums over policy signals, bond yields spiking, equities getting whacked. You know, the whole thing, right? So I think it's not unreasonable to put forth the question of whether or not he sticks with the plan or does the market pressure nudge him in a different direction.

22:59Andrew Horowitz:So, again, I think that Warsh really does bring a track record of discipline and independence to the table. And things that he's also talked about, I think will bring a reset to the Fed, their credibility, because that's been in question for a while. But the immediate action that we see, this action and reaction, shows, I guess, how pushed to the edge markets are and how sensitive prices have become to any hint of tighter monetary conditions. And look, from here, we're really going to have to keep a close eye on a few things. Of course, the confirmation hearings. That's something we'll have squarely in our view.

23:54Andrew Horowitz:So any little hint that comes out of the White House, we're going to have to watch. And of course, the dollar and metal flows. Because any one of those could bring a little clarity and settle things down, or they could light a fuse and continue this, you know, sell-off that may in fact start moving to other areas of the markets. As I said at the top, it's really been constrained to NASDAQ 100, some software, and some high beta. If you look at things like energy, hit an all-time high midweek last week. Staples doing great financials, solid as can be. The value side of the equation is doing great.

24:35Andrew Horowitz:As a matter of fact, on the big sell-off, I think it was Wednesday I was looking, the equal-weighted S &P 500 was up 1 % by the end of the day. Up equal-weighted. Whereas the NASDAQ was down dramatically. It was about a 3 % differential between the two. That is humongous.

24:59Andrew Horowitz:So because of all that's going on right now, the uncertainty, the chaos, chaos has been the, I think, I think 2026 dash chaos reigns. That's kind of, we'll sum up the whole year. But this is, honestly, this is exactly why we stay disciplined. The political monetary market feedback loops, they can get messy really fast, can't they? So rather than getting swept up in the hype of the headlines, you know what we do? We keep our footing. We stick to the process and let the noise simply burn itself out. What are you doing? Are you panicking? I will tell you that when we look at our portfolios going through all this, diversification has worked.

25:52Andrew Horowitz:Better than I can tell you. I was a little surprised part of this week. I'm like, how much is the market down and how much what? Portfolios are what? They're not moving? Reason being, if you look at where we have our allocation and some of the things we have, that's true diversification. Now, does it hold you back sometimes in those market conditions that you just see a certain sector is moving up like we saw a couple of times over the last year or so where technology is flying and the rest of the market is doing okay? and it's like, okay, well, you know, all right. Well, in the end, it's the tortoise and the hare.

26:33They get to the same place at different speeds.

26:37Andrew Horowitz:One is, you know, coming in all scarred up and all messed up to the end and one is just floating into the end very comfortably. But when we look at this, maybe there's a silver lining somewhere in all this mess of the metals. probably though, right after the margin calls are all cleaned up, right? That's going to be the issue. And when we're back on that subject, I want to talk to you about this because we talked about diversification for a moment here. And that's what we do for our clients, by the way. For those of you, by the way, that are really confused right now, I'm just going to stop here for a moment.

27:14Andrew Horowitz:If you're really confused about what to do moving forward in 2026, we're not. we have a good amount of clarity on where we go from here. And that sometimes is a very difficult task when you're looking too closely at the screen. You got to step back. But when also what we do is we have a different perspective on your portfolio than you have on your own. And that is why I say I don't cut my own hair. I've talked about this before. It's not because I don't have the physical ability to hold a scissor and cut my hair. That's not it. It's because the fact of the matter is that I can't have a proper perspective when I'm particularly cutting the back of my hair.

27:55Andrew Horowitz:I can't see it right. That being the case, I give those scissors to somebody else. And they do a great job. Cost me a couple of dollars, but in the end, I look great. And I'd probably hack up the back of my hair here and there, trying to make a little bit of a creative cut to the mess that I created. So with that in mind, go over to thedisciplinedinvestor.com. Let's take a look at your portfolio together, shall we? You have$500 ,000. That's what we start for our global allocations. Go over to thedisciplinedinvestor.com. Click on one of the buttons that says either Ask Andrew or take a look at our TDI Matt and Scrooge strategy.