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August 11, 2025 – There is an expression that rationality requires separating the wheat from the chaff. In Wall Street, to be a successful investor, it is necessary to separate hype from reality. That is particularly important as speculative fever rises. Some of the hype is real; some is nonsense. Don’t simply follow consensus. As investors you invest in companies, not hype, not single products, hot today but cold as ice tomorrow. Think rationally and you will be a successful investor.

//  by Tower Bridge Advisors

Stock prices represent the present value of future cash flows. Obviously, no one knows precisely what those cash flows will be. Thus, price represents consensus. Short term deviations in performance can impact valuations. But big gains or losses occur when the consensus is way off base. By now, virtually everyone knows the name Nvidia# even if they don’t understand exactly what it does. What made Nvidia such a stock market success was that predictions of future cash flows made 2-3 years ago vastly understated just how fast the company would grow and how fast AI would be adopted. Conversely, look at Peloton, the exercise bike that was such a rage just before and during the Covid pandemic. Today most Pelotons are clothes hangers. There are lots of similar examples. Remember Beyond Meat? Pea-based hamburger substitutes never took off.

As investors, we have to successfully separate reality from myth. That, obviously, isn’t easy to do, but it isn’t impossible. One rule of thumb I follow religiously is that you never should bet on a hot product as opposed to a hot company. Never, at least as long-term investors, chase a hot product unless you believe that the company in question will evolve into an enterprise with multiple products with multiple distribution channels supported by a first-class management team.

The same principals apply more broadly. Recall the buildup and hype surrounding GLP-1 weight loss drugs. In this case, the hype was real…partially. Yes, these drugs were revolutionary and the size of the market for them is huge. But the two principal drug manufacturers, Lilly and Novo Nordisk, caught up in a rage of investor enthusiasm, were quickly priced at 40+ times forward earnings. That suggested the rate of adoption would be exponential for years, and that pricing would be protected for years as well. In recent weeks, that assumptive balloon has burst. Yes, there is still plenty of growth ahead. But it isn’t to the sky. Whereas other bellwether drug companies sell at less than 10 times forward earnings, Lilly and Novo Nordisk still sell at a premium, rightfully, but not at the same level as before.

This saga also plays out at the macro level. Look at the current debate over Federal Reserve policy. A month ago, the presumption was that economic growth was solid, meaning on track toward growth of 2-3% with inflation edging down toward the Fed’s 2% target. But most recent data disputes those assumptions. For the first six months of 2025, growth in final sales, which extracts the impact of trade and inventory variations, has been a bit over 1%, hardly in line with target. Inflation numbers are distorted by tariffs but it is trending down. Service inflation, representing about two-thirds of the overall economy, is close to Fed targets. Goods inflation, which is impacted by tariffs, is somewhat elevated. But if it is due to tariffs, it may be one-time in nature. The last FOMC decision to leave rates where they were was decided before the most recent GDP and inflation reports. Its mandate is to preserve full employment and steady growth. Labor markets are softening and growth is below target. The case to lower rates starting in September is clear. Political pressure aside, I suspect we will see a cut in September unless data between now and the next FOMC meeting shows a meaningful positive change in trend.

None of what I stated suggests Trump’s call for sharply lower rates is right or wrong. While lower short-term rates will incentivize more consumer spending, it may also lead to an increase in longer term rates if the stimulus is too much and inflation expectations rise. One rate cut, by itself, won’t do that. Multiple cuts might.

Here’s the yin and yang. Tariffs and the uncertainty associated with the chaos of policy changes are a negative influence on growth. New tax incentives embedded in the recent tax bill, plus the deflationary force of AI and less regulation are deflationary. The future track of the dollar’s value in world markets is also a consideration, the path of which is beyond my pay grade. But with all that said, there appears to be diminished risk associated with a few 25-basis point cuts, than staying with what most would acknowledge to be a restrictive monetary policy at the present time.

Switching back to the economy, everyone notes that the Mag 7 now represent at least a third of the S&P 500. They also represent the vast proportion of capital spending growth and the lion’s share of earnings growth. This isn’t a fad. Not all of the Mag 7 will be long-term winners, at least not to the same extent. The world doesn’t need dozens of large language models. User preference will become obvious in the years ahead. As investors, remember that the early search favorites like Yahoo and Lycos disappeared as Google rose to prominence. MySpace, another early pioneer was obliterated by Facebook. Who still uses AOL for mail?

Which leads me to a closing example…Apple#. What I am about to say is NOT a recommendation for Apple’s stock but rather an attempt to place Apple properly in investor minds. To do so, I will use Wal-Mart and McDonalds# as proxies for where Apple might be headed. There are millions of places to get a hamburger, French fries and a Coke but for over half a century no company has done it better than McDonald’s. Ditto Wal-Mart as a retailer. In good times and bad, these two companies perform. They provide necessities. We still need to eat and consume goods in good times and bad. Is Apple any different? Is anyone going to give up their phone in a recession? Yes, it is obvious that each incremental iPhone doesn’t add all that much, although collectively over the years, today’s phone is much better than the phone 5 years ago. Much has been made that Apple seems to be left behind in the AI race. But does Apple have to reinvent the wheel and try to match ChatGPT and others? No!!! Apple will be the platform of choice for AI companies just as it has been the platform of choice for search using Google for its primary search engine and being paid billions for that privilege. What product will be the AI platform of choice? To be determined. But any company aspiring to be that king of the mountain would logically like to have Apple be its partner. So, while many of the Mag 7 will spend $100 billion per year to win the AI war, Apple will spend a fraction of that amount and ultimately partner with a winner. That’s the beauty of having the best ecosystem in the technology universe. Does that mean Apple’s growth will accelerate? Maybe not. But Wal-Mart and McDonalds only grow organically at a mid-high single digit rate and the composite multiple of those two stocks is similar to that of Apple. In other words, investors probably have reached the proper conclusion.
Apple still has work to do. Siri has to be improved as the mechanism to make AI inquiries. But Siri can partner with others to provide the answers.

The moral of today’s tale is to listen to consensus but think for yourself. What seems to by hype may be just that. As Warren Buffet said, he would rather buy a great company at a fair price than a mediocre company at a cheap price. You want to buy great companies, not great products.

Today, podcaster Joe Rogan is 58. And speaking Apple, co-founder Steve Wozniak turns 75 today. Steve Jobs may have gotten most of the fame, rightfully. But “Woz” was every bit as important in the early days, never caught up in the hype. One of the great human beings of my lifetime.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « August 7, 2025 – Football is considered a game of inches. Consider the “Brotherly Shove,” popularized by the Philadelphia Eagles, which is a play used to gain very short yardage and advance down the field. In order to counter this offense, defensive opponents have employed various tactics, but without much success. Two consumer-focused companies, McDonalds and Disney, recently reported quarterly earnings, and are slugging it out on the field as consumer preferences change and these companies try to adapt.
Next Post: August 14, 2025 – The market is increasingly divided, with a strong AI-driven rally on one side and a weakening consumer economy on the other. This contradiction creates a significant risk of a sudden economic downturn or stagflation, as soaring tech valuations may be unsustainable without broader economic support. »

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  • August 28, 2025 – The July jobs report signaled a cooling labor market, with slowing growth and a slight rise in unemployment, yet consumer spending remains resilient despite retail price hikes caused by new tariffs. This mixed economic data creates a conundrum for the Federal Reserve as it balances its dual mandate amid political pressure and inflationary headwinds. Given this uncertainty and the S&P 500 trading near all-time highs, investors should brace for potential market volatility post Labor Day, as the Fed’s next policy moves will depend heavily on upcoming inflation and jobs data.
  • August 25, 2025 – The Fed’s shift in policy, as stated by Jerome Powell last Friday, moves away from a focus on inflation and more toward insuring full employment. Such a shift suggests more short-term rate cuts and a willingness to tolerate some inflation as long as it stays below 3%. A willingness to tolerate a bit more inflation may sound innocuous but it could lead to unanchored long-term inflation expectations and keep 10-year Treasury yields elevated. If so, the euphoria expressed in Friday’s market rally may have been a bit too exuberant.
  • August 21, 2025 – This Friday we will receive commentary from the Federal Reserve after its annual gathering in Jackson Hole, Wyoming. The central-bank gathering has sometimes been a venue for marking shifts in Fed policy. Last year Fed Chairman Powell used it to signal that rate cuts were coming, and followed through the next month. The Snake River, which runs through Jackson Hole, provides an apt backdrop for the Fed’s meeting where the waters can be turbulent and winding. In the meantime, technology stocks have retreated this week and a number of consumer-focused companies have provided both encouraging and uncertain signals.
  • August 18, 2025 – The noise of front-page news doesn’t seem to coincide with record stock prices. War, ICE raids, violent storms and tariffs may be the topics of the Sunday talk shows, but the stock market cares more about earnings and interest rates. Earnings are rising and interest rates are stable. Will that continue? Earnings growth should slow a bit as the full impact of tariffs hits. While the Fed Funds rates should start to decline this fall, markets will focus on changes in the 10-year Treasury yield more than the Fed Funds rate.
  • August 14, 2025 – The market is increasingly divided, with a strong AI-driven rally on one side and a weakening consumer economy on the other. This contradiction creates a significant risk of a sudden economic downturn or stagflation, as soaring tech valuations may be unsustainable without broader economic support.
  • August 11, 2025 – There is an expression that rationality requires separating the wheat from the chaff. In Wall Street, to be a successful investor, it is necessary to separate hype from reality. That is particularly important as speculative fever rises. Some of the hype is real; some is nonsense. Don’t simply follow consensus. As investors you invest in companies, not hype, not single products, hot today but cold as ice tomorrow. Think rationally and you will be a successful investor.
  • August 7, 2025 – Football is considered a game of inches. Consider the “Brotherly Shove,” popularized by the Philadelphia Eagles, which is a play used to gain very short yardage and advance down the field. In order to counter this offense, defensive opponents have employed various tactics, but without much success. Two consumer-focused companies, McDonalds and Disney, recently reported quarterly earnings, and are slugging it out on the field as consumer preferences change and these companies try to adapt.
  • August 4, 2025 – Confusing economic reports on GDP and the labor market can be decoded to show that growth in the first half of 2025 was muted while inflation was well contained before the full impact of tariffs. If those data trends continue, look for one to three 25-basis point rate cuts before the end of 2025. That outlook may change with subsequent data but it is increasingly clear that an economy that has proven so resilient may need a bit more help to offset the impact of tariffs and significantly lower population growth.
  • July 31, 2025 – The U.S. economy demonstrated a strong rebound in Q2 2025 with 3.0% GDP growth. Tech giants Microsoft and Meta significantly exceeded earnings expectations, fueled by the ongoing AI boom and robust cloud and digital advertising performance. While the current AI-driven market rally shows parallels to the dot-com era’s speculative growth, today’s tech giants exhibit stronger financial fundamentals than many during the earlier boom. Investors should balance the allure of high growth with valuation discipline and diversification to mitigate risks in this dynamic market.
  • July 28, 2025 – The world looks pretty healthy but rising speculation elevates our concern. When the amount of corporate money flowing into bitcoin is twice the amount raised in initial public offerings to date, that gets our attention. With that said the focus this week will be on earnings and a slew of economic data on inflation, interest rates, and employment, all of which can be market moving.

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