Picking Up Pennies in Front of a Steamroller

Former Disney CEO Bob Iger once said, "Everything about our world is being disrupted, and faster than ever." Although this is true, people don't like change. It gets them out of their comfort zones. Sometimes reactions can be harsh when confronted with a new norm. For instance, in 1997, Fox Sports introduced the Fox Box to NFL viewing audiences. The Fox Box is the  bug on your television screen that displays the  game score and the game clock. How did we live without it? It's commonplace now. When introduced almost thirty years ago, the executive in charge of the decision received death threats because it took away from the purity of the viewing experience. At least according to disgruntled football fans. Go figure.  

For the past couple of months, I've been working with the Gemini AI Chatbot to screen for stocks that have the potential to take me to the promised land. At least that's the assumption. Although I'm primarily invested in the S&P 500, I still relegate a small portion of my portfolio for individual investments. My track record is spotty, but once in a while, I catch lightning in a bottle. Unfortunately, that's few and far between. 

That said, because of the AI revolution, investors have felt confident about their prospects going forward. Until yesterday. The S&P 500 fell more than 4.25%. The worst day in eighteen months. There are concerns of a slowdown in data center construction because of the blue wave after the midterms. It took down what was an above historical average year in the market to a mediocre year. We still have two more months to regain ground, but the selloff hurts. Especially if you relied on margin. 

I recently read Disruption Investing by Stephen McBride with Dan Steinhart. Not a great investing book but very useful. The writing style didn't grab me because they made investing sound too easy, but it's filled with terrific charts, graphs and statistics. One part of the book I found particularly interesting is the subchapter "Most Stocks Suck". The authors acknowledge stock market historian Hendrik Bessembinder and his findings between 1926-2023 which are (and these are taken directly from the book): 

• Fifty-eight percent of stocks failed to beat risk-free Treasury bill returns over their lifetimes.
• Just over 4 percent of stocks are responsible for boosting the stock market's overall returns above Treasury bills.
• Seventeen stocks had cumulative returns greater than 5 million percent.
• The average stock returned nearly 23,000 percent.
• The median stock experienced a ghastly return of -7.4 percent. The average is buoyed by those  seventeen outlier stocks that generated returns of 5 million percent or more.

The problem arises in that it's very difficult to pick those winners. That's why I primarily stick with the S&P 500 as my investment of choice. I do have some spotpriced Blockchain ETFs, but they don't constitute the majority of my portfolio. In fact, it's a minor percentage. You'll notice that I said Blockchain instead of crypto. This is because if you say crypto, people assume or associate it with Bitcoin. I don't invest in Bitcoin. I believe in it, but not to the extent the crypto enthusiasts do.

During yesterday's market implosion, I frequently checked my watchlist waiting to see if one of the stocks I've researched dropped into my buy zone. One landed below my limit price, Penguin Solutions, which fell from approximately $85 in August to $38 during the last hour of trading. A nice discount. Did I buy some shares? No. I got cold feet. This isn't my first rodeo. I've been burned too many times before with "can't miss" investments. At least from my perspective. I keep repeating the old Wall Street adage, "Don't confuse brains with a bull market."  

Blitzkrieg Bop

Dateline: September 1, 1939. The beginning of the Nazi Blitzkrieg offensive which overran the Polish Army and ushered in World War II. Each Panzer tank had a radio operator and a two-way receiver allowing communications with reconnaissance vehicles, motorized infantry, and the Luftwaffe on a shared frequency. This was unheard of at the time. Most armies in 1939 relied on flag signals, hand signals or runner messengers between tanks. The German Army revolutionized the use of integrated radio communication, and as a result, overwhelmed their opponents in the early stages of "The Big One". 

Palmer Luckey was a technology wunderkind. In 2012 at the age of 19, he developed the mock-up for what would become the Oculus virtual reality headset. Two years after beginning construction of his prototype, he sold the finished product to Facebook for about $2 billion in cash and stock. He was 21 years old. For three more years he remained at Facebook (now Meta), as a hardware developer, until he co-founded Anduril Industries. Anduril Industries is a defense technology company which, according to Gemini, "builds autonomous surveillance systems, artificial intelligence software, and defense hardware for military applications." Fast Company recently named Anduril Industries one of the most innovative companies of 2026. 

At first blush, I considered Anduril Industries a company I should closely monitor for possible inclusion in my portfolio for whenever they go public. Andreessen/Horowitz is a big investor and they do exceptionally well with their venture capital investments. They hit paydirt more often than most. Like Palantir, Anduril Industries is a defense contractor which specializes in Artificial Intelligence.  Although both companies are disrupting traditional Military Industrial Complex suppliers, Palantir is basically an AI software business and Anduril Industries is primarily an AI hardware corporation. This is a simplistic definition, but I'm not getting into the weeds with the bits and bytes of what each company does technically even though their software offerings somewhat overlap. This can be demonstrated in their operating systems.

Lattice OS is Anduril's crown jewel. The operating system ingests data from a variety of sensors emanating from drones, radars and sentry towers to "build a unified operational picture and automate asset tracking". In other words, it's looking to find someone to kill autonomously. No human interaction required. What happens if the AI begins to hallucinate? You get a false positive. That's fertile ground for lawsuits and war crimes. Although Palantir's platform Gotham also aggregates mission data to provide an operating picture in real-time, the intelligence analysis is for commanders. There's human interaction before somebody drops a bomb or pulls a trigger.  

The hardware Anduril Industries manufactures is straight out of Flash Gordon. One of their big divisions is Autonomous Air Systems which specializes in reconnaissance drones with names such as Ghost, Roadrunner and Fury. Some carry payloads with capabilities of engaging in dogfights with enemy combatant jets and drones. They also have a "kinetic interceptor quadcopter designed to physically ram hostile drones", appropriately named Anvil. A terrestrial specialty is "solar-powered autonomous surveillance used for perimeter defense and border monitoring". In Undersea and Maritime systems, Anduril builds autonomous underwater vehicles for deep-water surveillance and "mine countermeasures". This isn't the military I grew up with, but the military has always been on the cutting edge of technology in my lifetime. 

It's a brave new world. For instance, with a side-project called Warhound, Anduril is genetically modifying attack dogs for military use. They partnered with biotech company Colossal Biosciences for this endeavor. Colossal Biosciences' founder Ben Lamm is known for de-extinction projects. I've seen Jurassic Park and know how badly things can turn out. I'm a big proponent of the AI revolution with some caveats, such as the government should regulate the technology. Not enough to fall behind China or Russia, but just some guardrails. The changes in technology are moving faster than I can keep up with.

Palmer Luckey is a big time Trump supporter and contributes significant amounts of money to the Republican Party. If Luckey were a Republican Classic like Mitt Romney or John McCain, it wouldn't bother me, but he's MAGA through and through. His donations for right wing ideologies got back a decade and he's only 34 years old. The question that comes to mind is, what made him so conservative at such a young age? If you think he's going away, you're wrong. Luckey is very influential in Silicon Valley. Walter Isaacson, chronicler of all things digital has a new Podcast about AI called "The Builders" and Palmer Luckey is one of his first guests. Like Howard Hughes once said: "I'm not a paranoid deranged millionaire. Goddamit, I'm a billionaire". 

Anthropic: The Show Must Go On

On Monday, October 26th, Anthropic (ANT) filed an S-1 statement with the Securities and Exchange Commission which paved the way for an IPO in the not too distant future. The S&P 500 and NASDAQ rose on the news and although Animal Spirits haven't engulfed the market yet, it points us in an upward direction. The business press in print, broadcast, and cyberspace is saturated with news about Anthropic. I don't need to rehash yesterday's news. To put it into a nutshell, Anthropic is growing exponentially, losing considerable amounts of money, and is battling with Google's Gemini and OpenAI's ChatGPT for market supremacy in the AI arena. It's a cutthroat competition, but Anthropic is the market leader in the enterprise space.

Would I like to own shares of Anthropic? Absolutely. However, in my opinion, a big problem is that it will be one of the most oversubscribed IPOs in stock market history. This means it will probably be out of my price range once I'm able to purchase shares. Do you remember when Facebook, now called Meta, went public? The market buzzed about the prospect of quick riches, only to have the equity drop 50% soon after it began trading. Financial chatrooms were rife with stories about investors losing fortunes. Although the stock bounced back after it initiated a wireless app plan, there were months of hand wringing. They only had a desktop version of Facebook at the time of the IPO. Zuckerberg caught on quickly. "Move Fast and Break Things" is the company motto.  

The Facebook story isn't an outlier, it's very common for IPOs to fail, or do poorly. Picking stocks is a very difficult occupation. Not only do you have to buy the right stock, you have to buy it at the right time. Pay too much, you've got dead money on your hands. Plus, if you buy on the first day of trading and the stock goes up, you have to prepare for the end of the lockup period when company insiders cash in and dump their shares after working for stock options for years. The shares usually sell off during this time. 

With Anthropic, the easy money has already been made because it's been trading in the private market for a few years. Owned by the more affluent individual investors, investment banks, venture capitalists and pension funds. We're exiting the billionaire era and entering the trillionaire era. My measly portfolio doesn't pass muster to be included with the wealthy elite. That said, Anthropic will be hot on the first day of trading. We haven't had many IPOs recently and this is one of the better ones. I think it's going to be an alpha dog and propel the market higher. Especially when it's going public in the fourth quarter of this year, a historically beneficial time for equities.

I'm a big proponent of AI because I use it daily. A few years ago I installed the Perplexity app on my iPhone. Perplexity was ballyhooed as the frontrunning AI app three years ago, and although still relevant, doesn't quite stack up to the big three. I switched to Google's Gemini because I have a Chromebook and Gemini is built-in to the operating system. Your prompt history is in sync with the Gemini smartphone app if you have a Google account. It makes doing research easier and more convenient. Plus, it's free. The free versions of any of these AI applications are all you need to do the majority of your research. What used to take me an hour or two now takes minutes. 

I recently did a stock screen with Gemini. I found some gems in the Artificial Intelligence subsector of second derivative plays. UIPath (PATH), Penguin Solutions (PENG) and Tempus AI (TEM) were all added to my main watchlist. UIPath is a turnaround play that orchestrates Agentic AI bots for the Fortune 1000. No debt, a treasure trove of cash and a large client base. Penguin Solutions is a software and memory producer for Neoclouds. A Neocloud is a GPU as a service and high-performance infrastructure for Agentic AI. Tempus AI has a big moat in advanced precision drug discovery. All three stocks are beginning to run, so I'm going to sit on the sidelines for awhile and monitor them. I'll pass on them even though we're in a buy high, sell higher environment. I prefer a margin of safety. 

The Magnificent Seven

There's an old expression about Wall Street prognosticators that goes: There's those that don't know and there's those that don't know that they don't know. I know I don't know after investing for close to forty years. You can make an educated guess as to where the market is going (and it's usually up about 75% of the time), but just stick with S&P  500 index funds and you'll double your money every seven years on average. During the current bull market, your investments went up close to 100% in S&P 500 index funds in just over four years. That's a great return.  Many investors are bearish on the market and have done poorly. As John Maynard Keynes so aptly put it, "The market can stay irrational longer than you can stay solvent." 

Back in 2013 the acronym FAANG entered the lexicon of equity investors. Originated by trader Bob Lang and popularized by CNBC's Jim Cramer, it epitomized the large cap growth stocks for more than a decade. FAANG stands for Facebook, Amazon, Apple, Netflix and Google. You'll note that the majority of these stocks are still leading the market except for Netflix. Although a great company, Netflix is no longer a growth stock. Times change. For the last few years, FAANG stocks have morphed into The Magnificent Seven, or Mag 7 as they're  called. The Mag 7 consists of Apple, Alphabet, Meta, Nvidia, Microsoft, Amazon and Tesla. Many of the stocks remain the same but their names have changed.  

Most of these corporate behemoths are going to be here for the foreseeable future, but not all are going to make it. Just look at Netflix. It was supposed to grow to the sky, but the stock price has been cut in half the last couple of years. They are no longer a Wall Street darling. An option for Netflix is to buy NFL and college football broadcasting rights to goose their subscriber base, but that's going to cost money.

Currently, the Mag 7 stocks are in an enviable position. We're in an AI race with China and breaking up these conglomerates would put us behind the eight ball with the PRC. The question remains, which one or which ones are going to fall by the wayside? Many investors thought Meta would remain severely depressed, but they recently released a personal AI agent called Muse which brought the company back into the competition. With over two billion Facebook users, Meta is a formidable opponent. In addition, Meta has Mark Zuckerberg as its CEO and entrepreneurial CEOs are usually a plus. 

Although Nvidia and Apple have outperformed the S&P 500 on a year-to-date basis, the remaining members of the Mag 7 have been laggards. Tesla has negative returns for the year. Elon Musk has stated that he may merge Tesla and SpaceX next year, creating an organization that you would read about in a dystopian science fiction novel, but that is months away. Plus, it will have to get approval from the SEC (Security and Exchange Commission). 

I'm not smart enough to pick the winners and don't invest directly in the Mag 7 stocks, but I still own them in my pedestrian S&P 500 index funds. They command a huge percentage of market cap weighted S&P funds and ETFs. Approximately 35% which is a huge concentration risk. I'm willing to take that chance because historically, only a handful of stocks are big gainers in the index. That said, if you examine the top American stocks going back 50 years, the top ten equities in the index tend to change from decade to decade. Investors seem to believe that the Mag 7 gravy train is going to go on forever. It's not. It never does.

It's been about twenty years since the digital oligopoly began its ascent. What began with modest means is now a cadre of CEOs worth trillions of dollars. The law of large numbers doesn't apply. At least not yet. Which company will become the next Kodak, Xerox, GE, Blockbuster Video or Borders Books? I don't know, that's above my pay grade, but some of them are going to fall. I hope I'm wrong, but history doesn't repeat itself, but often rhymes.