2025 Stock Market WRAPPED

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3:13Led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. All right, folks, welcome to Investing for Beginners podcast. Today, Andrew and I are gonna have a little fun. We're gonna do a 2025 stock market year in review in, I guess, honor of all the Spotify wrapped that everybody has been seeing over the last few weeks. Side note, that has got to be one of the most brilliant marketing strategies ever. So today we thought we would talk a little bit about the year in review, what happened in the stock market.

3:55And as a little special bonus at the end, we are going to reveal some of our Spotify wrapped numbers from the podcast. So stay tuned for the end for that. So I guess let's start with how has the market done this year? Yeah, I think you pulled up some numbers, right? I did. Yep, I did. According to S &P Dow indices, the S &P 500 has produced an 18.2 % return year to date. We are recording today on December 18th, 19th? 18th. December 18th of 2025. So we're not quite at the end of the year. The NASDAQ was 22.8 % and the Dow was 14.6%. So pretty outstanding numbers for the year so far. A couple other interesting tidbits.

4:47This is the third strong consecutive year for equities. And only 10 times in the last 30 years has the S &P returned greater than 20 % in back-to-back years. So it doesn't appear like we're going to get three of those, but we're in the ballpark. And it also said that the historical average after such years is a positive 15 % the following year. So that's from the NASDAQ. So overall, I think you could say we've had a pretty darn good year in the stock market so far. What would you say? I would say it hasn't felt that way if you are a consumer, if you are looking at the economy, and if you aren't exposed to AI.

5:30Yeah. Yeah, totally. It's been an odd year. There's certain pockets, and we'll probably talk a little bit about that going on. There's been pockets where it feels like it's been awesome, and then there's pockets where it's been like, this is awful. So kind of to your point about the different companies and whatnot. So I guess there were three kind of main themes, if you will, for this year. Obviously, the one that has dominated everything has been the AI boom and the profitability question, which has kind of popped up in the second half of the year. But the AI boom has certainly dominated what's happened this year.

6:13Yeah, it certainly has. I mean, we've talked multiple times on this show about the headlines that have been very splashy. And it seems like if you don't own NVIDIA stock right now, you're kind of getting left behind. Yeah, yeah, for sure. And to that point, some numbers that I pulled up give us revenue growth for NVIDIA for the last quarter was 78%. For their quarter one fiscal 2026 year, their revenue was up 69%. And so the data center revenue has grown 66 % year over year. And Jensen Wong was quoted as saying that Blackwell sales are off the charts and Cloud's GPUs are sold out. So it appears that NVIDIA is humming along really well.

7:06So you look at numbers like that for the company that is the largest company in the world right now, those are big boy numbers or big girl numbers. So that is something to definitely consider when you're thinking about investing and how that's impacted the stock market returns over the year. So if you're an investor and you don't have exposure to NVIDIA, do you think now there's the time? I do not, personally. I still feel like it's, we could argue until the cows come home how to value the company. It just feels overvalued. When I've looked at the numbers from a very superficial standpoint, it feels expensive.

7:54And it also optically looks expensive. And then there's also just the history of the stock market tells us that no company can grow. A$4 trillion plus company cannot grow at 78 % year over year from now until the end of time. And so at some point when it does normalize and it will normalize, then it will start to feel like this is really, really overvalued. So that's always been my concern with NVIDIA. I've never doubted that it's an amazing business or that Jensen Wong knows his stuff, but it's always just felt like, for me, it's been the too hard pile and I'm going to pass. Yeah. I like that you brought up history because it is truly, I mean, we've used this term, people have used this term too much lately, but unprecedented.

8:53and just the size and scale and percent concentration that NVIDIA makes up of the S &P 500 is not something that's normal. It is very abnormal. And we have had different markets, different companies, different stocks. But to your point, it is hard to... I don't know. I mean, on the one hand, I look at a company like Apple. They buy back a ton of stock, but they pay a dividend. You're going to get returns even if the company doesn't become hugely big. But NVIDIA, all the returns need to come from them becoming hugely big. So how hugely big do they get when they're already a monster size? I don't know if there's a good answer for that, but it is a difficult proposition.

9:49Let me ask you this. If you are an AI truther or AI maxi, if you really think that AI is everything, then do you think NVIDIA is a must-have stock? If you really fall into that camp, then I would probably say yes. if you're more like Andrew and I, where we're a little more skeptical, cynical, maybe not cynical, but more skeptical and a little more, I guess, on the cautious side, then I would say you can get fantastic returns without owning NVIDIA. And you can be involved in whatever's going to happen with AI now and into the future by owning other parts of the food chain, if you will. There's lots of great companies that you can own that are connected to what's happening with NVIDIA as well as some of the other hyperscalers that you can do really well with those.

10:57Google is up 60 or 70 % over the last seven or eight months. And it just shows you how much sentiment can change. Microsoft and Meta and to a certain extent Amazon were the clear, air quote, clear winners of AI earlier in the year. and Google was going, Alphabet was going to be the loser or one of the losers. And now that's kind of flipped. And so I think there's lots of opportunities for sure. I might have said this on the show before, and if I haven't, I think it's probably a good thing to mention. One of the things about AI is there's no question that it's amazing. There's no question that it can do some pretty awesome things.

11:41there's also no question that it hasn't it's not fully developed yet uh it's still growing and it's still learning and what it can do two years from now will amaze us if we look back on it from today but some of it feels a little bit like the internet uh for those of you who weren't around in the late 90s early 2000s when the internet became a thing there were a lot of people, the dot-com boom, a lot of that busted, but it didn't mean that those people were wrong in their investments. What it meant was they were too early. The impact of what was going to happen with AI was actually five, 10 years after the dot-com bust.

12:28And so anybody that was investing prior to that was looking at how much the internet could impact society, commerce, the way we do business, all those things, which all came to pass. But people that invested early didn't see those returns because the valuations got so out of whack that they didn't really benefit from being early. And I'm not saying that that's going to happen with AI, but that is one of the lessons that we could potentially learn from history about what happened is that will quantum computing or will the nuclear reactors, will all that stuff be the way that we do these things in 10 years?

13:13Maybe, but it also could be that you're just investing too early. And AI could be the same way. If we all look back in ancient history of two years ago and look at what chat GPT was when it first came out and how revolutionary it was, and you compare it to what it does today, It's night and day. I saw this video on Instagram, and I'm going off my high horse here. I saw a video on Instagram today showing the evolution of a picture of Will Smith eating a piece of cheese pizza and what it was like two years ago, then a year ago, and then today. And a year ago today was quite comical. And the one today looked perfect.

13:57It looked like an image of Will Smith eating a piece of cheese pizza. So it was pretty amazing. So my hesitancy to the AI truthers would be, you may not be wrong, but you might be early. Yeah, well, kind of going to what some of the sectors you were talking about that have done really well in the market this year, a lot of them are, to your point, you can get exposure to the AI trend without needing to own the NVIDIAs or Broadcoms of the world who may or may not be overvalued because everybody already knows that story. But there are other sectors now that seem to be coming higher because people are putting the pieces together that, okay, if we're accepting AI as a thing that we're going to live with over the long term, there are other companies, not just NVIDIA, who are going to benefit and those pockets are seeing some growth.

14:55So what are some of those that 2025 has shown us? According to the SAP DAO, the winners so far for the year have been the communication services, technology, kind of a duh, and then energy. So energy is one of the bigger bottlenecks to AI. And so there's been lots of discussion more recently about infrastructure and energy and how we're going to generate enough energy. And I've seen differing reports in the media about how much energy they're estimating we're going to need based on the build-outs of all the AI data centers around the country. And those are the big numbers. And it's kind of across the board, it's about doubling the energy generation we're going to need in the next four or five years.

15:46And so that indicates that there's going to be a lot of money going towards the energy sector and the infrastructure sector. And that's where the market actually saw some biggest returns in that. And by the way, electric cars haven't gone anywhere. Yes, I know the tax credit to incentivize buying has been phased out, but people are still buying EVs. You can just look outside your window and see that as evidence. So that's definitely going to create demand for energy as well. Oh, yes, absolutely. Yeah, even though maybe the enthusiasm of Tesla and Elon Musk has maybe faded a little bit compared to maybe a year ago or so, it's still easily the leading car, the EV builder, and they still have a strong presence.

16:38And even where I live in Wilmington, North Carolina, I'm seeing more and more Teslas on the road every day. And the hybrids have also had, I think, I believe a big jump as well in popularity as well as production of those, including our friends at Ford. They announced recently that they were going to be switching to hybrids and they were discontinuing their fully electric F-150 model. So, yeah, definitely the EVs are going to have an impact, and they're going to need more energy too. Whatnot is quickly becoming the next big thing for you to pay attention to, and its success isn't even slowing down over time, but it's compounding faster and faster.

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19:52Check it out at einvestingforbeginners.com slash 60. I pulled up some numbers just because I was curious. Using finbiz.com, a free screener that is available for all of us, there are 10 stocks in the S &P that doubled this year. Four of them, and this is four of the top five. So Robinhood's here in the mix. They're number four. But we have Sandesk, Western Digital, Seagate, and Micron. These all have a similar theme. What is the theme here? They are tied to the memory industry. The first three I'm not as familiar with, I'll be honest. But Micron, I know, is heavily involved in the production of memory chips for AI.

20:45They work directly with NVIDIA to design chips that the GPUs will use to make the AI magic. So basically, and this is just me totally taking a layman's idea, you have a computer board and then you might have the NVIDIA GPU, but then you also have the Micron chips that have the memory, so each of those kind of play their own role. Yeah, that's exactly right. Yeah, so SanDisk was a six-bagger, basically. It's up 500%. And then the other three are up over 200%, so they all tripled for the year. It goes to show you what kind of returns are available for cyclical companies. Because I thought I remembered not too long ago, everybody was talking about memory.

21:45being a place where you don't want to be because of overcapacity, man, the way the pendulum can swing. Yeah. And really quickly, I remember looking at Micron earlier in the year, and I want to say it was trading for like a 10, 11, 12 PE, something like that, very low. And when you looked at their revenue growth, it was fairly anemic. And so it was like, well, that's kind of why it's probably trading for that. But now, as a 200 % return, I believe their PE doubled over the year. So they've had a huge expansion in the multiple. And all of that is being driven by what's happening with the AI demand and what they think is going to happen.

22:36Yeah, crazy times. A couple others that doubled that I thought were interesting. lamb research also in the semi space and then palantir's randomly in there maybe not randomly because they're kind of changing the world but i thought that's kind of a fun stock to to talk about too and then warner brothers warner brothers discovery warner brothers discovery wow that's interesting i would not have pegged them as having that big of a return for the year

23:07you have these huge returning stocks if you are an investor who's feeling FOMO you're feeling like man I didn't get any of these top 10 stocks what would you say to somebody like that I would say try not to chase the earnings the hard part about trying to jump on the train especially when it's going really really fast is that if you don't time it right, you're going to get squashed. And so that can be, it can be very dangerous to try to jump on the train. So if you're interested in memory, then I would probably suggest that you learn as much as you can about those particular companies and wait, because it will come back.

23:54As Andrew said, they are cyclical. They're very cyclical. Memory, if you look at kind of the whole overall semiconductor architecture, if you will. It looks like from what I've learned that memory is probably one of the more volatile parts of that business because it goes in and out of favor as far as overcapacity. So they build too much and people and their demand slows down. So then they have inventory that they got to sell and move through. And meanwhile, technology keeps evolving. So it's a very, very cyclical industry, far more so than semiconductors, just in general, whether it's CPUs or GPUs.

24:34So if you are interested in something like a micron or a SanDisk, learn as much as you can about the company because the knowledge will compound and just wait because it'll come back to you. That's cool. So how does an investor know when to wait and when to pull the trigger for something super cyclical like memory, home builders, anything like that. That's like very, very wide swings. I think the way that a simple way is to look at the history of how the company has performed. If you look over time, you will see things like revenue fluctuate. You'll see margins fluctuate and you'll see the PE ratio, for example, just as one metric.

25:19You'll see that fluctuate from really high, like micron at 25, to earlier in a year when it was 11 or 12. And so when you see those wide swings, that's going to tell you that these kinds of industries are very cyclical. And there's no particular way that I've discovered to time them, so to speak, but there are several ways that you can kind of not work around it, but at least understand it, is follow the companies that you think are the best in those industries and keep an eye on the trends and also try to utilize dollar cost averaging as much as you can. If you buy, it's always obviously best to try to buy at the low part of the cycle, but if you can't exactly do that, then if you dollar cost average and depending on how strong you think the company is, you can also adjust your position sizing as well.

26:17So instead of taking a 15 % position size, maybe only take one or 2 % and dollar cost average into it and let the company earn a bigger percentage of your portfolio as it performs better. And those are some ways that I guess I have tried to deal with that. You've dealt with cyclical businesses before. Do you have any thoughts? Yeah, another way I like to do it. So for example, with the home builders, and this is something I've kind of ripped from Oswalt to Modarin. Modarin, Domodorin, I don't know how to pronounce it. I've heard both. Okay. Okay. So you take most recent revenue, which could have its, depending on how cyclical the revenue is, that could be a problem on its own.

27:09But what you could do is you can take the most recent revenue and then you look at what's like a 20-year average for operating margin. And then rather than take whatever the operating margin is at today at face value, you take that long-term average and you apply it to the revenue. And that gives you kind of like a 20-year normalized average of an estimate of if profits were somewhere in the middle this year, than how much profit are we talking about. And then based on that, you can back out a very rough value for the company. Maybe it's not... If it's$3 billion, maybe I'm comfortable saying that $20 billion is reasonable for evaluation, but maybe$60 billion is not because that's so far from the profit.

28:06So that's one way. I think like you, I haven't found a surefire way to do it. I think I've probably tricked myself into thinking I've had a couple of good lucky buys. But to your point, when you buy a cyclical, it's very important that you're picking the right one. Because even something that's cyclical might not get the same. Everybody's going to talk about the winner, so it'll be like, oh yeah, in hindsight, yeah, of course that cyclical would have bounced back. It's not always the case that the companies that aren't as good will bounce back like the winners will. Yeah. I think that's some great sound advice of how to try to work through investing in cyclical business.

28:55Because the fact of the matter is that a fair amount of what you can invest in in the S &P 500 is going to have some element of cyclicality to it. Whether it means that a particular industry or sector may go out of favor for a period of time, or others may be favored for a period of time. And that's a form of psychocality as well, of maybe not the economic variety. Maybe it's more psychological, where people are like, oh, I hate banks, or oh, I hate technology, or oh, I hate healthcare. and everything is unfollowed or unloved for a period of time and then it'll come back. Do we want to talk a little bit about maybe some of the, maybe not necessarily the specific volatility that we saw, but just maybe some of the volatility that we saw and how zooming out kind of does impact your returns?

29:54Yeah, please. Okay. um so you know throughout the year we had several panic attacks if you will i call them that because it was very short-lived there were different different times throughout the course of the year where the market would drop sometimes it was two or three percent sometimes it was eight or nine percent and or or more but it always recovered so everybody probably remembers the liberation day You know, when Donald Trump talked about Liberation Day and the announcements of tariffs and the negativity around that. So during that period, the S &P 500 fell for a couple of days and everything was selling off and everybody was like, is this it?

30:40Is this the time that the bubble popped? And then we're looking at an 18 percent return for the year. So I think the, and there were several other different, you know, there was a November dip with the concerns about the profitability of AI and whether all this, you know, so-called circular spending for the AIs with OpenAI and with all the hyperscalers and NVIDIA and all these companies making deals with each other and how all that's going to flow. there's a lot of concern about whether they're overspending. And that caused some of these companies, including NVIDIA, to dip. But again, we're still at an 18 % return for the year.

31:21And for those of you unfamiliar with the history of the stock market, 18 % is well, well above historical returns. If you include dividends over the last 100 years, you're looking at anywhere from 8 % to 10%, depending on which source you look at for historical returns. So we're almost doubling that this year and we're considering it air quoted down year. So expectations are a little high right now, shall we say. So I think when I talk about some of these volatility events throughout the year, the reason why I point these out is because I want you to, when you experience it, how to think about it mentally.