Is Your Investment Strategy Positioned for Uncertain Times?

Q&A with Summitry CEO Colin Higgins

Investors face many uncertainties going into 2025, from geopolitical tensions to the recent market panic over generative AI’s future following the launch of the large language model DeepSeek in China.

Summitry’s Chief Executive Officer, Colin Higgins, believes it’s important for investors to review their strategy to ensure it continues to align with their short- and long-term goals, and shares how investors can navigate the markets today.

What is your current take on the economy and markets?

Higgins: The markets and the economy are facing uncertainty as we digest the recent transition from the Biden administration to the Trump administration. The market generally dislikes uncertainty, so we would expect a period of increased volatility during this transition. That said, some of the Trump administration’s policies are expected to be pro-growth, but at the same time, they could be inflationary. We therefore see both headwinds and tailwinds in the market overall, but we also believe good opportunities exist for the vigilant and careful investor.

In terms of the overall market valuation, stocks are coming off two very strong years of gains exceeding 20%. However, we should be cautious not to expect the same type of returns that we’ve received over the last several years. When prices are elevated, the potential for outsized appreciation is less.

Should investors stay invested in the stock market?

Higgins: If you look at what the market has historically returned – about 9% to 10% return over the years – we think it’s prudent to always have exposure to the market, based on your timeframe, objectives, and risk tolerance. Stocks have historically been one of the best-performing asset classes relative to fixed income and cash alternatives, and we have no reason to think that won’t continue in the long run.

At Summitry, we focus on individual securities and understanding their intrinsic value. Our philosophy is to create a portfolio of high-quality securities in which we have a high degree of confidence about their worth and that we pay an appropriate price for it. Rather than buying the market as a whole – we invest in individual businesses.

Is active investing a better strategy than passive investing given high stock valuations this year?

Higgins: The market price-to-earnings ratio appears high relative to historical values, but it’s a narrow group of companies that is driving the market’s return. The Magnificent Seven have contributed more than 50% of the total market returns. When a small subset of businesses are driving the majority of S&P 500 returns – for instance, Nvidia constituted about 6% of the S&P 500 – we would be more cautious about owning the market (like in a passive index fund), and more interested in buying individual businesses and securities.

Essentially, we prefer to put together a select diversified portfolio of what we believe to be the strongest names as opposed to making broad bets on general sectors. Owning the S&P 500, with its broad diversification across 500 securities, doesn’t necessarily increase the likelihood of positive returns. You can achieve the benefits of diversification with 25 to 30 stocks, which allows us to have better oversight into whether each individual stock is trading at a reasonable value relative to the market price.

What is the impact of China’s DeepSeek AI on the technology sector?

Higgins: The market is largely focused on DeepSeek’s impact on Nvidia and whether it presents an alternative to the reliance on using Nvidia GPU chips for powering large language models for AI inference. This could play out in two ways:

1. It could lower the cost of AI computing power, spur greater adoption, and make AI more ubiquitous, ultimately driving more demand for AI and Nvidia chips over the long run; or
2. It could provide viable alternatives that reduce dependence on Nvidia chips and processors, enabling AI to be developed more cost-effectively.

It remains to be seen at this point which outcome will prevail, but from our perspective, it’s important to examine all other individual businesses in the broader tech sector. By and large, Google, Microsoft, Amazon, and Salesforce would likely be net beneficiaries of increased AI demand. More broadly, if the ultimate cost of AI goes down, many tech businesses could stand to benefit.

For a deeper discussion of DeepSeek’s market impact, check out Summitry’s webinar.

What are the top concerns you hear from your clients?

Higgins: Right now, the transitioning of the U.S. administration adds a lot of uncertainty around policy direction. Interest rates and inflation are top of mind, as they can act as headwinds to investment returns and the economy. Turning to macro topics, geopolitical concerns with China, Russia, and the Middle East also weigh on investors’ minds.

But I’ve been doing this for decades, and there’s always something that will weigh on investors’ minds and sentiment. It’s important to step back and ask: What are my goals and objectives? What is my timeframe?

When investors become too focused on the day-to-day market fluctuations, they risk losing sight of their long-term goals. That’s when mistakes happen – when people sell during periods of fear and uncertainty, then buy when there’s exuberance and overenthusiasm in the market.

Generally, we remind our clients that over long periods, the market has demonstrated its ability to generate strong returns and build wealth. Our job is to ensure our clients can sleep at night knowing their assets are safe and secure and they will have enough to withstand market volatility while maintaining the quality of life they aspire towards.

The Bay Area has been affected by layoffs, especially in the technology industry. How can one prepare for a potential job loss?

Higgins: That’s a challenge in the Bay Area where many people work in the tech sector. Many invest in technology stocks, whether through employee stock options or as part of their portfolios. Ensure your portfolio is adequately diversified, and maintain a cash balance to withstand any uncertain developments that may come based on your employment.

It’s important to recognize the value of having a partner and a financial advisor to help navigate through these circumstances and uncertainties, as well as opportunities.

Should an investor diversify their portfolio with Bitcoin or other cryptocurrency?

Higgins: When we think about Bitcoin or any cryptocurrencies, we don’t necessarily view them as investable assets. Rather, they are speculative, where investors are betting that someone in the future is willing to pay a higher price than what they paid.

We typically value assets based on future cash flows they generate. That’s why we cannot reliably value cryptocurrency or any asset that doesn’t produce a cash flow. That said, some of our clients have done phenomenally well owning it.

Summitry’s financial advisors can help construct resilient portfolios so clients can reach their financial goals through uncertain times. Talk to us today about how we can help you balance growth and risk mitigation.

The securities identified and described do not represent all the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.