Tom Lee: The Biggest Market Shake-Up Is Coming

the man who needs no introduction.

Believe it or not, he's been doing this

for four decades already, 35 years in

the industry. Former chief equity

strategist for JP Morgan. For the past

11 years, he's been the co-founder and

the head of research of Funstrat. The

past six years, he's been doing a lot of

work for retail investors like myself

and you guys at FS Insight. Uh last year

he launched Granny Shots, the ETF, and

as of June this year, he's the chairman

of BMNR.

So he's diving into crypto and Ethereum,

the man of many talents. Hello, Tom.

Good to have you on.

>> Yeah. Uh great to be on with you, Tom.

>> So Tom, I got to ask you a question

here. Uh looking back, we're up about,

you know, 80 something% over the past

three years. uh what did the bears get

wrong for the past years as of 2023 24

you've been one of the only voices

saying hey this is going to happen what

did 90% of analysts missed over the past

three years

>> um yeah you know um

Scott Bessant famously has said in the

past that you know 80% of a trade is

macro you know and so I think for the

last three years um most investors ers

took that to heart and became armchair

macro people. But what threw people off

over the last three years was a few

things. Number one, uh they were too

grounded in like believing there's a

science to the yield curve. You know,

like the yield curve was inverted. Now,

we explained at Fundstrap that the

inversion was due to inflation

expectations. Inflation was higher

near-term, so the nominal rate should be

higher near-term, but it would drop long

term. That's why the yield curve

inverted but everyone said it was a

recession signal. Uh number two

I I think what

people got wrong is that they

we never had experienced inflation

before. So everybody was anchored in

1970s as like the template not realizing

that we didn't have the same

interactable conditions to cause

inflation. So I think people were

structurally bearish because they're

like curves inverted there's a

recession. Second, we have stagflation.

And then they missed that companies were

real time dynamically changing their

business models to deal with inflation

and a tight Fed. And they delivered good

earnings. So I think Fund Strat and our

our focus for our clients was look,

let's just find the best companies.

They're not really going to be beaten up

because of inflation. And and that

thesis proved correct.

>> I mean, you know what they say, time is

the best friend of a great business. in

the stock market at least and the worst

enemy of a of a crappy one and that's

true in inflation or in a bull market

doesn't matter but I've heard you speak

for the past few weeks and it seems to

me that we're repeating some of the

similarities that what happened in 2022

when everybody's starting to get bearish

right now about this market they're

starting to get anxious and um you are

taking a position again that you think

that we are still in the bullish setup

and I know I know you work. I've been

following your work. So, I know you've

been bearish before. People just haven't

seen it for the past 5 years. So, you

can be bearish. That's the one thing I',

you know, I've been doing this for 30

odd years. Um, what do you think people

misunderstand the most about the current

setup?

>> Um,

well, I think what what people have a

hard time understanding and grasping are

super cycles. Uh, because

um, you know, Funstrat's work by nature

is thematic. We look for story arcs that

last 10 to 15 years. So the reason we

turned structurally bullish in 2010,

well 2009 was because um our cycle work

showed that there was a long-term bull

market starting and beginning in 2018,

we identified two future super cycles.

One was millennials and the fact that

they're entering the prime age

workforce. That was a powerful tailwind

that would last up to 20 years. And the

second was there was a global prime age

workforce labor shortage. I know it

sounds like plain vanilla to say that,

but that was going to set the stage for

an AI boom. So, we're in the midst of an

AI boom that is causing prices to

levitate. But this is pretty textbook.

In 1991 to99, there was a labor shortage

and tech boomed. 1948 to67, there was a

labor shortage and tech boomed. So, tech

is booming. And a lot of people look at

stocks that have a high sharp ratio,

right? They're just going up and they

assume it's a bubble. And so people have

been chronically trying to short Nvidia

every step of the way up. And then the

second thing people anchor to is that

well many people aren't really that old

in our business. Um I I was actually a

an equity research analyst during the

dotcom boom. So so many people are

saying this is just like the.com mania.

Um there's

some

similarities, but we're so far from it.

But everyone thinks that this is B

again. And the mistake of making they

have to understand

>> in the in the late 90s, right, which was

the heart of the

>> Yes. Yeah. And I I was actually helping

uh doing the wireless sector. So they

were part of that buildout of the fiber

and the cellular towers and the

internet. I remembered that data

networking analysts asked me Tom what is

TCP IP because you know wireless

companies had to do some basic

architecture so uh this is very

different because AI of course is

gaining function internet wasn't gaining

function there was just a lot of

spending

>> like I I I find it amusing when people

draw the comparison between Cisco and

Nvidia because like if you if you look

at it telecom and um GPUs it's such a

completely different life cycle right

with telecom capex deployment you know

it's once in every couple you know

decades and then in in GPUs I mean

you're living through a new cycle every

couple of months it's insane

>> yes that's right so the thesis in

telecoms back then because people forget

because telecom was the capex boom not

internet

uh in the emerging markets telecom

spending was associated with GDP growth

so there was an emerging markets thesis

around telecom spending. Uh that was in

the mid 90s, but then that spilled over

into the US digging up a lot of fiber

everywhere on the railroads, on the

streets. Many people were young, but

they were, you know, Quest and everybody

was laying fiber and then they were

laying fiber across the world with

global crossing. The problem is internet

consumption of that was not at all

keeping pace with the explosion of of

the amount of fiber being laid. there

was almost 99% dark fiber at the peak.

Now, Nvidia GPU usage, as you're saying,

is pretty much 100% usage the minute

they turn it on. It's a lot like more

like the Cheesecake Factory where when

Cheesecake Factory opens a store, it's

at 98% capacity.

>> If Nvidia could increase capacity by

another 50%, they would still sell out

of every single chip.

>> That's right. Because uh as you know,

today there are three really binding

constraints. It's Nvidia chips. It's

actually silicon uh surrounding it and

it's energy and all three are

constrained and then it's really not

maybe not the best word but the gain of

function of AI is actually progressing

faster. So, uh there really right now is

capital spending is behind the curve.

>> Tom, I got to ask you a question. uh

you said on multiple occasions that we

might see 7,000 7500 on the S&P 500 by

the end of the year. I I mean I I take

all of these with a grain of salt as you

yourself explained that you know

everything is fluid but generally

speaking you're bearish heading into the

final couple of months of the year. What

do you think the sector that's going to

surprise people for the next couple

months that they're not seeing it

coming?

Yeah. Uh Tom, I might have misheard you.

Were you saying that I'm not bearish

into the final four few months?

>> I I heard you talk about a bullish cycle

going into the final few weeks of the

year.

>> And I heard you I think it two weeks ago

talking about 7500 on the SP00 as a

possibility.

>> But again, I said like maybe 7500, maybe

7,000, doesn't matter. But overall,

you're bullish heading into the final

few weeks. So my question is what sector

do you think is going to surprise people

for for the better versus the current

expectations?

>> Well um yeah it's uh well number one as

you as your viewers know people have

gotten pretty bearish in the last couple

of weeks because the government shutdown

kind of has deprived the economy of

money and then the Treasury Department

isn't dispersing funds. So the liquidity

has shrunk and it's caused stocks to

actually wobble and every time the S&P

is down two or 3% or AI stocks are down

five uh I think people get really

cautious. I think first of all bear uh

bullish sentiment is not even anchored

properly. People become so hesitant. I

think everybody thinks there's a top.

Here's the thing. When everyone says

there's a top there cannot be a top. uh

the top in the in the.com was because

nobody thought stocks could ever fall.

They actually thought we were entering

like an an era of a you know continued

prosperity. The second thing to keep in

mind is that markets have been strong

for the last six months. There is

incredible

uh demand for equities because people

have are really off sides. That's that's

what you have to keep in mind. In April

of this year, people

thought we were facing Armageddon

because of tariffs and you had many

economists proclaiming a recession and

that's how institutions

traded. They were actually positioned

for a massive bear. It they can't fix

that in six months. So, we're now

getting into year end where institutions

80% are trailing their benchmark this

year. It's the worst performance for

institutional fund managers in 30 years

and they have 10 weeks to fix it.

they're going to be buying stocks. And

finally, um, visibility for AI has not

even been affected by the government

shutdown or anything. So, companies are

going to start, as they think about

2026, start making announcements. So, I

think in the final months, like I think

one surprise is the AI trade's going to

come back strong because it's wobbled.

But, but the Fed is getting people

scared because is the Fed going to

suddenly hammer down on things? But keep

in mind, inflation has been softening.

So if they cut in December, they're

confirming they're on an easing cycle.

Now that's not that meeting is not for a

few weeks,

>> but that would be really bullish for

financials and small caps. And by by the

way,

>> what's correlated to tech and financials

and small caps? It's crypto. So I think

you're going to have a massive crypto

rally as well.

>> How far do you think we we get on uh on

Bitcoin by the end of the year?

Well, I think people have dampened their

expectations for Bitcoin. Uh

because partly because Bitcoin's been

treading water and there have been a lot

of OGs, uh original Bitcoiners that are

selling above 100,000, but it is still

an underallocated asset class. So, I

think Bitcoin actually potentially can

get to the high 100,000, you know, maybe

even 200,000 by the end of the year. I

think it's a big ask. But to me, um,

what's more obvious is Ethereum, uh, can

have a huge move into your end because

even Kathy Wood wrote about it. She

thinks stable coins have been

cannibalizing demand for Bitcoin and and

gold and tokenized gold is cannibalizing

demand for Bitcoin. But stable coins and

tokenized gold run on smart contract

blockchains like Ethereum and Wall

Street is building and Larry Frink wants

to tokenize everything on wall on on the

blockchain. That means Ethereum is where

people are starting to raise their

growth expectations. And if you're

raising your growth expectations, then

you're your discount to the future's

going up. So I I think that there's a

bigger move in Ethereum.

Mark Newton, our head of technical

strategy, thinks we can be like 9 to

12,000 by January. I I think that's

about right. I think Ethereum just 3600

more than doubles between now and your

ender between now and January.

>> And uh the thing you pointed out earlier

and that's the that's the part I I

wanted to ask you. I've been fascinated

by this question. So obviously just to

recap what you're saying, you look at

the fear and greed index. We closed

Friday on 21. We're at extreme fear. You

look at the Fed CME watch tool, it says,

"Yeah, 70% chances of another cut in

December and everything is rallying and

you're saying, well, doesn't add up,

right?" So, you mentioned this and I I

keep explaining this to my viewers. Um,

if you're managing money for very

wealthy individuals, right, you're

getting paid 2% AUM and 20% carried, you

are expected at the very least to not

lack the S&P 500, right? So, as you

pointed out, there's a huge game of

chicken going out now for the past three

years, 23, 24, and and and so far this

year with professional money managers

essentially trying to will their way on

the market and they're essentially

doubling down on this bearish position

saying, "Oh, it's coming. It's coming."

So, I think at some point, as you as you

point out, you have to make the call to

say, "Well, we got it wrong. We have to

jump in." And as you pointed out, I

think yeah, towards the end of the year

is where it's like the championship

rounds in boxing. This is rounds 10, 11,

12, it's going to happen then. I I agree

with you. So my question to you is um do

you think that

that also spills over to

cryptocurrencies as far as Ethereum and

Bitcoin that institutional

participation?

>> Yeah, I do, Tom. Uh, one thing you're

pointing out and that's correct is that

2025

is the third year where the S&P will be

up double digits, probably up 20% this

year. So, three years of 20% gains in a

row. Okay, remember at the end of 2022,

people were saying we were Armageddon.

Nobody was bullish.

So in the last three years, wealthy

individuals and hedge funds recommended

people go to cash or they do

alternatives like private equity,

private credit or venture. But the S&P

500 has trounced all of those categories

of assets.

So this is a comeuppance because you

know three-year return what is someone's

excuse for basically maybe having flat

performance or up 15% when the S&P is

almost you know up 200%.

So, uh, this this is really a a the

reason 2026 is probably not as bearish

as people think because now next year I

think people are going to be like, "Wow,

wait, Nvidia and all these are public

companies uh, and their earnings are

growing 50%. I think people are going to

actually start chasing them next year."

That's really positive for crypto

because as you know there is also this

argument today that the crypto cycle is

a four-year cycle so it should be ending

now. So people are trying to fade that.

>> I think people are trying to fade

everything the S&P and the crypto but

forgetting that the Fed is beginning to

cut

>> and the ISM

and we've written about this is more

correlated to Bitcoin than monetary

policy. And until the ISM gets to 60,

Bitcoin really can't peak. So I I think

this is pretty positive for crypto. But

crypto, you know, it's kind of been hurt

because, you know, monetary liquidity

hasn't been really increasing. The Fed

has been under QT, quantitative

tightening. That's ending in December

and the Fed hasn't really given clear

signals that they want to ease. So I

think there's been a little bit of

confusion for investors.

Speaking

>> should be ending there.

>> Speaking about confusion for investors,

what do you think is the most overblown

overrated risk right now in the stock

market that everybody is harping on?

>> Uh I mean I would say if if I had to say

what is the most overrated risk?

I think the most overrated risk is that

inflation's coming back. Um and I mean I

know how I thought you were going to say

that. I was I I I had a bet on that.

>> Okay. Well, maybe that was a polymarket

bet. Um but the reason I think it's

overrated is I think too many people

think um monetary seasing cycles are

create inflation or they think GDP

growth creates inflation.

Uh but inflation is a very mysterious

thing because we had a lot of easy money

for years and there was no inflation.

And now that the labor market's

softening and the tariffs basically were

supposed to create another wave of

inflation, it hasn't. And housing is now

tanking.

How do we get inflation if the the big

drivers are housing? The big drivers

inflation are housing, labor costs, and

then goods. But none of those are

inflating. I heard a a Fed speaker last

week say core services is inflating

again. We checked it. It's that's dead

wrong. PCE core services is now running

at 3.2%.

It's been long-term 3.6. It's actually

running below average and core services

generally runs above 2% because goods

offsets that. So I think that there's a

false belief inflation is actually

strengthening.

>> Do you see a I'm want to be devil's

advocate here for a second.

What about a curveball that comes from

oil? Let's say geopolitics, wars,

supply chain, oil shoots up. Could you

see a scenario where this makes you

bearish if that happens?

>> Uh I mean there is a possibility.

Um oil if it goes high enough can create

a shock. Um and so um if you look at the

the last three um cycles of shocks,

inflation shocks,

uh sorry, the last three non-fed related

um econom economic shocks were commodity

shocks, but oil has as a burden has to

become meaningful to households. So you

know in the last few years the the

energy intensity economy has actually

shrunk.

So, uh, oil needs to get close to 200 to

create that shock. You know, $100 oil,

we got close to that.

>> Yeah.

>> It doesn't create the shock. um you

really need to be getting. So could oil

triple on a geopolitical maybe but

remember this summer the US bombed

Iran's nuclear facilities and people had

said that if the US ever bombed Iran's

nuclear facilities oil uh would spike to

200 and it barely budged.

It's again I'm young so I haven't been

around for the past 100 years but one

thing I can say just destroy my own kind

of devil's advocate argument is like

geopolitics have never long-term slow

down the US economy or the US stock

market. We had like local shocks but I

mean we've never had geopolitics cause

an actual recession or or a big stock

market crash in the United States ever.

>> Yes. That's right. Geopolitics can crash

um

unstable economies. I mean, it makes

sense. Like, you know, if you if you're

looked at like Asia, anytime there's

been like an a revolution, like the

stock market crashes,

>> um and I think a lot of people think the

United States is a banana republic, but

as you know, uh the real key is are

companies earnings going to crash

because of geopolitical tensions? And if

they don't, then I I think we should

stop, like you said, overlaying that as

a as a principal reason we could have a

bare market.

>> Yeah. You know, the famous chart uh Josh

Brown put it up, the one that he he he

superimposed all the crazy things that

happened in the world on top of the S&P

500 and then he I think it's a it's a

beautiful chart. I love his work. Uh

shout out to him. So, I want to ask I

want to ask a question based on what you

just said. So, we were talking about,

you know, the Fed is there's a good

chance the Fed cuts, the market is

pricing that in as, you know, Fed CME

has it at 70%. What happens if Powell

throws a curveball and doesn't cut in

December? Does the market uh react

negatively to that?

Uh yeah, in the short term, Tom, that

would but as you know, um Fed Chair

Powell now he's done a good job um as

Fed chair, but as you know, he's not

popular with the administration. So

there's a good chance that he is a lame

duck Fed chair and there's going to be a

replacement named. I think if he doesn't

cut in December, the White House is

going to accelerate plans to re re

replace the Fed chair. So a Fed a shadow

the odds of a sha quote shadow Fed go to

100%. And that new shadow Fed will be

establishing monetary policy. So I think

there isn't going to be as necessarily

negative repercussions because I think

this the the idea of a new Fed would be

one that doesn't have to be ruled by all

the voices of the Fed either. there may

be a a shift in the way monetary policy

is conducted.

>> I think people in general put too much

into what Pal says, how he says it. I

think there's over over analysis of of

his televised speeches. I I think it's

an obsession that needs to go away, but

that's just my personal opinion. I want

to ask you a question, Tom.

>> That's pretty wise advice, Tom.

>> Yeah, it's overanalyzed. Come on. But I

do want to ask you a serious question.

I've been getting a lot of calls from

family members, from close friends, uh

saying, "Look, I'm sitting in cash. I've

been sitting in cash since 2022.

Uh should I should I give up and jump in

right now?" But everybody keeps telling

me the market is too high. What should I

do? What's the Tomy answer to that

conundrum?

>> Yeah. Well, I it might and that's a it's

actually a great point because I think a

lot of people have this dilemma. And by

the way, when I was at JP Morgan and I

left in 2014,

the bo the bull market bottomed in 2009

and even in 2014, six years later or

two, five years later, there were many

people at JP Morgan that were still

sitting in cash and they were becoming

desperate because they didn't know when

to start getting into the market again.

So, it's highlighting two things and I'm

glad you brought it up. Number one,

when you sell out of stocks, you've made

one decision.

Now you're forced to make another

decision. Are you smart enough to

reenter at a better price? That's the

reason you should never panic sell

because unless you're positive, you'll

make a tactical re-entry.

You've now sat out

a compounding. And as Josh Brown's chart

shows, every crisis was always an

opportunity, not a time to sell.

>> Um, but the second is if you're in that

position,

you you have to accept you've made a big

mistake. And the minute you accept that,

then the way you fix it is dollar cost

average. So you now have to now

re-establish your position. But I

wouldn't do 100%. And I would not

be tempted to say I'll wait for a

correction. Do you know how many people

are waiting for a correction? So I would

not put 100% back into stocks, but

dollar cost average means take 12 months

and then do 18 or 112th or 10% every

month and then you're back into the

market. And that way if there is a dip,

you can actually take advantage of that.

>> Uh it's funny you should mention this. I

know you don't watch my videos. I mean,

not not all of them,

but I'm kind of known as

>> Thank you. I appreciate it. But DCA is

kind of my thing. So, when you say that,

I I feel like, you know, I can say great

minds, think alike, but uh I'm not

that's as far as going to go with that.

But do do you think that um this market

is weird for me to even ask that because

when I grew up like retail never drove

anything? we always were like, you know,

kind of the the the dumb money.

Is it possible that this bull run is

mainly driven by Retita right now and

institutional investors are still on the

sideline?

>> Well, um, you know, I I'd like to

correct something that people have said

because I've been in markets, as you

know, for 35 years.

>> Yep.

>> And I've never thought retail was wrong.

Um I I grew up in at Smith Barney which

was what they call quote a warehouse

system. Uh so there was a lot of retail

investors you know that was their order

flow was probably 50/50 institutional

retail.

>> Uh I've in the 90s retail was always

right.

Um, so the reason is I think retail,

remember, not I mean I'm generalizing

because there's a lot in retail. There's

like day traders and there's Robin Hood

and then there's Schwab and then there's

high net worth. But the reality is the

person who's buying stocks because they

have a long-term view of stocks is going

to get this market right. fact,

>> there are more of those people in retail

than in institutions because the

institutional investor has a monthly

bogey they got to beat and they're under

pressure to beat their peers. So

sometimes they forget that Nvidia is

just a long-term buy. They're trying to

time the market. So I would say anyone

who operates with a long-term view is is

the smart money. And that's been mostly

more of those folks are in retail.

>> You know, when I was advocating for

Palunteer,

uh, so I start I started talking about

Palanteer right after the DPO launched.

And it's funny, I went through every

possible emotion ever. DPO comes out, we

we start talking about it. I say, "Hey,

this is a this is a trillion dollar

company." It goes up from 10 to $40 per

share and being held as the greatest

genius in the history of the stock

market. it then drops to $6.

I'm getting death threats. And for for

that whole year, I've been saying, "Hey,

be patient. It's all good." You know,

you're getting a discount. Just look at

the long term of the of of the business.

The fundamentals, the prices is not that

important. And now we're back. I'm back

to being genius. And when it corrects

another 50%, I'm going to be back to

being hated again. But the fact of the

matter is anybody who looked at a

company whether it be Palanteer or

Nvidia or Tesla on the long-term view

and they've analyzed the business and

ignored the price action in the short

term have all made money as long as they

were patient enough. And I I think that

never changed in the past 100 years. I

mean we've been doing the same thing for

the past 100 years. You want to buy good

businesses. The only thing is I think

and tell me if you agree with me. I

think a lot of retail investors

misunderstand this point where the hunt

for the perfect entry point. This is my

biggest problem when I talk to people is

like I explain, hey, if you're trying

to, you know, if you're a long-term

investor, let's say DCA guy, you want to

be in the market for the next 15 years.

I mean, you shouldn't be looking for

entry points. You know, you just want to

dollar cost average and do a good

business. But um

what about like what's your position on

arguments like for example a company

like Palanteer? You don't talk about

specific stocks. I'm not going to ask

but you know a lot of companies right

now with a triple digit P ratios and

people are saying well that's too

expensive that's ridiculous. You

shouldn't be even thinking about

investing company with a you know 200

300p. So, is there is there a scenario

where you think a three-digit P ratio

still makes sense as a long-term

investor?

>> Uh, yeah. Okay. Um, I'm going to I got

to draw two circles. Okay.

Circle one is all companies that trade

at a 100 PE or that don't make money.

Okay.

>> Yep.

>> And you know that's like 40% of the SM

uh 40% of the stock market. like not in

the S&P, but just like of the 4,000

stocks out there.

Of course, those the majority are bad

investments because,

you know, if a company can't make money,

it's probably a not worth your capital

to risk. But then I want to draw a

second circle

unique what they call N equal one

businesses. Okay. What are N equal one?

Companies that number one are like

laying the the groundwork for a huge

secular story. Uh therefore, they're not

making money now. Or founders that are

creating constantly new markets so that

the current earning stream doesn't

reflect the future. Okay, Tesla and

Palanteer are examples.

>> Look at data centers. I did wireless.

Wireless was exactly that second

category. They didn't make money because

they were building cellular systems, but

once they did, they became like huge

companies.

>> Yep.

>> They should trade at huge multiples

because you're trying to discount the

future.

Imagine if someone said, "I'll only pay

10 times Tesla earnings because it's

just a car company." They they missed it

for for the last almost seven years,

eight years. So uh that category you

have to start with a different mindset

which is find unique founder businesses

and then determine if the multiple is

reflecting the discount to the future.

So those and those cases I think you can

you can pay 100 times but the other

circle all companies that don't make

money and trade 100 times 99% of course

are not great businesses. So I don't

>> that's the difference between 99 and

2025 right 99 the vast majority was the

second circle where uh very expensive

businesses do that didn't generate cash

flow

>> and now in 2025 most of these hype

companies they're still generating a lot

of billions of dollars in cash flow.

>> Yeah. So I think that like the companies

you want to own are like the circle

where it intersects you know the N

equals one

founders and then they might have high

multiples but that they're they're

actually good investments like Palanteer

is a great investment. Nvidia is still

actually really cheap. You know

>> people don't remember but you had

Palunteer in Grenots multiple years ago.

I remember I'm I'm a paid funstrat uh

sorry FS Insight member. Uh I by the way

they gave me one for free now your team

>> I've been a paid I've been a paid member

for years I remember seeing on the

granny shots seeing Palunteer years ago

but I do want to ask you this question

Tom um I don't want to put you on the

spot here but look people saying look

Nvidia Palanteer

GPUs it's all very concentrated right

for and that's a huge sign of a bubble

because this rally is too concentrated

do you agree with that sentiment

Well,

uh, AI is a scale business,

meaning you got to have a lot of money.

Like you and I can't make a competitor

to OpenAI,

you know, like us in our garage. Like

we'll make something that looks cool,

but it's never going to compete with

OpenAI. So, it's a scale business.

A scale industry is something like

energy or banking.

There are only

eight oil companies in the world.

Literally all the capex for for all the

refiners. Like there's only eight people

that buy oil in the world. What if

someone said oil is a circular business

because there's only eight companies

buying oil. Like we'd say that's

ludicrous because you got to be big to

be drilling for oil and like you know

you got to be a major. Guess what?

That's a that's AI. It's a scale

business. That's what this is showing.

And you know, do we want Nvidia to be

dealing with like hundreds of thousands

of tiny little companies? I'd rather

they be dealing with some big companies

that can deliver stuff and then there's

ramifications and then to ensure the

financial viability. So I think it makes

sense that there's this taking place. I

I I think it's really logical.

Yeah, I tend to agree and Tom flipping I

we talked about how most experts by the

way I got to be honest myself included I

thought 2023 is going to be

subpar year and on record saying that I

would got it wrong but I'm in a good

company because everybody for the most

part got it wrong except a few. So you

you called it and you keep calling it

correctly.

What did the past two years in the

market even though you've been doing

this for four decades? What did the past

two years in the market uh um what's the

most important lessons I guess for the

past two years for you personally?

Well,

the last two years include and this year

have showed the mass delusions

uh can persist for a long time. And I'm

sorry, that's not the right word. Mass

misconceptions

because as we started this conversation,

the reason people were bearish for the

last few years is they thought that we

were having a recession.

They couldn't explain it because they

didn't see it in the companies, but they

were so sure because of the yield curve.

And by the way, that made companies

cautious, right? Um, so companies forced

themselves to change. And then people

were convinced inflation was going to

explode and just never go away.

That is a a massive

like disconnect from the actual

underlying data because if if there was

massive inflation, companies couldn't

even make money and they were doing

fine. Remember people said banks would

go bankrupt because of the curve was

inverted. Banks made a lot of money. So

there is uh I think still this

reflection that human behavior doesn't

change. You know I mean people believe

something and they get anchored to it

and then most of the time when the data

disagrees with them people choose to

believe themselves than to actually

believe the data. I think the reason

fund strat actually stayed bullish was

that we weren't we weren't anchored to

our view we were anchored to the

earnings and the earnings came through

you know and people call us permable but

earnings have been on a perma perma rise

I don't know what to say you know what I

mean like if someone I I'd say that

we've been following a different set of

data that really ultimately drives stock

prices

>> would you would you agree to me

recapping this as a ego

I think

>> they get into a position and then like

they fight for it.

>> Yeah. I think there's something that I

think is important and uh we speak about

a lot which is there's a difference

between being having conviction and

being stubborn

and being stubborn is like what you're

saying people believe that they're

smarter than the stock market whereas

conviction is anchoring on the correct

thing.

Uh, by the way, remember in a room of

geniuses,

the best you can be is average. So, no,

you know, like if someone thinks they're

smarter than the stock market, they have

to realize it is more than a genius. So,

I, you know, we don't try to outsmart

the market. That's Fundstrat lets the

market tell us how to be positioned. I

know it sounds backwards,

>> you know. It's it's it's funny. People

don't don't learn history but uh couple

decades ago Peter Lynch famously said

that more money was lost waiting for

corrections than money lost in

corrections themselves and uh he's kind

of the gold status right with his I mean

I don't think anybody outperformed Melan

over the course of his years I mean what

like 30% a year something crazy like

this

>> yeah that's a gold standard and today

there's there's folks like that David

Ter and uh you know Stan Denmiller I

mean, those guys have, of course, you

know, enviable track records. And by the

way, I mean, they're all examples of

like they will counter trade the market.

Um, you know, earlier this year, Nvidia

was like 90, you know, and people didn't

want to touch it at eight, you know, at

those levels.

>> And and then in as soon as Nvidia is

down 10%, people don't want to touch it.

I think people really have to realize

their emotions are forcing them to be

stubborn rather than having conviction.

>> One of the things I wanted to to teach

uh people who come in and try to uh work

with me is like this idea think about

the stock market just like you think

about any other place where you you're

procuring other services or goods,

right? If you come into to to the app

store and they're selling the iPhones at

a 30% discount, that's usually a source

of excitement.

But somehow in the stock market, it's

this reverse psychology where now all of

a sudden, well, the iPhone doesn't look

as good anymore because it's discounted

and you're not even looking at the

underlying fundamentals. I think where

do you think this stems from this

inability of people to um to look at

stocks and the stock market in general

uh fundamentally and instead of doing it

more emotionally?

>> Yeah, it's a good behavioral question.

Um

I think it reminds me of uh and we we

cite this a lot at Funstrat. Um the

Japanese word for crisis is kiki.

And so crisis actually has two words. Uh

it's two Kiki is two words danger and

opportunity.

So most people in a crisis only focus on

the danger. So, like when markets are

down, people are only thinking of the

danger to their portfolio or that they

think, "Oh my gosh, I'm I'm I'm not I

must be missing something because I'm so

convinced something's a great idea. It

should only go up every day." But the

reality is they should view that as an

opportunity because the markets will

give you opportunity. So, you know, in

in Fund Strat's world, we always have to

balance that. We know there's danger,

but we see opportunity. That's that that

this year was a really good example of

that February to April period during the

tariff crisis. Many people went too far

on the other side and said we're going

to have a recession or everything's over

or Trump is going to ruin the economy.

But they didn't see the opportunity and

and they only saw the danger.

>> And you pointed this out. I remember in

April you said, "Hey, look at the

sentiment surveys and break it down by

political affiliation

and you'll see it's politically

motivated, not actual sentiment." I

remember that from April.

>> Yeah, it it's that didn't people took a

lot of offense, Tom, when we did that

because we showed that the country is

5050 Republican, Democrat. It's really

evenly divided.

But this consumer sentiment surveys

actually now become really extremely

democratic leaning. 66% of you miss

respondents are Democrats. But they're

the Democratic respondents had the worst

reaction to everything. And the stock

market

can't dis discern that difference. I

think that

>> we have to remember companies, it's

better to think of the market as

companies not

your political view.

>> Yeah. And it's a

we're not going to talk politics here.

Definitely not. But uh you've been

utilizing politics a lot at Funstrat

over the over the past year and working

the market based on uh on how politics

play out and uh

it's it's funny how some people refuse

to do that because of like the the

inability to disengage political

affiliation opinion versus making money

in the stock market. It's it's weird,

right?

>> Yeah. Uh, and again,

>> it's like betting against a team that

you're a fan of. You know what I mean?

It's so hard to do. When you're a fan of

a team, it's like it's hard to bet

against it.

>> Yeah. And I think you said it earlier,

there is a lot of ego in investing

because like there's a lot of thrill

when you like a company and you like the

stock and then it goes up because it's

confirming.

And then if you like an idea

but the stock goes down then you start

to question you know you take it like

one might take it personally like oh am

I what am I missing or the market's

crazy and so there's a lot of emotions

that get involved and

u and I see that at work everybody

everyone suffers from that and machines

by the way aren't going to fix that

because machines have a similar bias by

the way there's um you Because

>> they're they're built in our image. So

they're going to make the same bias we

do.

>> Yeah. And everyone has a recency bias.

You know, machines still have recency

bias because they're going to overweight

the last 5 years, 10 years or they're

going to wait shorter cycles where

there's still so much more noise. So um

I think that's why you have to step back

and then think of super cycles and long

term. Like if Palanteer is down, does

that change Alex Karp's mission? you

know, if Nvidia is down, does that

change that AI is like, you know, a

super cycle? It doesn't. So then

you just have to look past that. And

it's true in crypto too,

>> especially in crypto because there the

sentiment there drives uh

>> drives everything. Um, so I I want to

let you go at at nine because I know you

have something uh so we have a few more

minutes

>> and I want to end with this question,

Tom, if you may. Um, if you had to

describe based on what we know today,

obviously there's the unknown unknowns,

right? Based on what we know today, if

you had to describe the stock market for

the next 12 months in one sentence, what

would it be?

>> Well, I'm going to say just buckle your

seat belt, okay? Because in the last

five years, the market has gone up a

lot, okay? or the six years since 2019,

but we've had four bare markets. So, we

have a bare market every year. That's

going to test your resolve. So, I think

people need to just buckle up because I

don't think next year's any different.

>> 2025.

>> Yeah.

>> Sorry, Tom. Go ahead. Go ahead. I was

say because 2025 remember we were down

20% at one point

and uh and then we've come back and

we're up we're going to probably be up

20% for the year. So just keep in mind

um it could happen again or very likely

>> in April as a you know I'm a very heavy

into Palunteer in April we were down

50%.

this April on Palatine

>> when the tariff scare remember the

tariff scare where everything was over

the world was ending so I couldn't agree

more and you just gave me a wonderful

YouTube title for the next video Tom Lee

buckle up

>> in all caps

>> this the perfect you should do YouTube

>> Tom I want to thank you for coming on

today I want to be respectful of your

time. I I know you said you have a

little bit more few minutes, but you

know, I want to do this again if if you

may in a few months possibly to have you

come back and talk about what's going

on. I absolutely love your work and uh

um I I hope that uh we can do this

again, but I just want to kind of the

final question to you. Um, if you had to

give uh um kind of this uh uh one piece

of advice uh not financial advice, this

is a different question. One piece of

advice for people who started investing

after 2023.

There's a lot of new investors in the

market that haven't seen a serious

pullback. So, anybody who started 203,

24 or this year, what's your kind of one

word of advice for these folks that have

not seen a real market yet? Yeah. Well,

uh, yeah. So, first, Tom, uh, you do

good work, so I'd be glad to do your

show again, but I don't know when. It's

just I'm, you know, very overscheduled.

Um, but I would like to do it again. Um,

>> thank you so much, sir.

>> The advice I would give is

the it's great. Markets feel great when

they're rising, but there are going to

be very long periods of time where it's

misery and you're going to question

yourself. But that's when you need to

have resolve and conviction because more

money is made when you can invest at the

lows than trying to only trade this at

the highs.

>> Couldn't end it any better. Tom, thank

you so much for coming on today. I think

you dropped a lot of wisdom on us and

our community. We appreciate having you

on and as you said, you're welcome

anytime. And uh this probably becomes a

YouTube video which I split up to like

five different videos

[Laughter]

based on the amount of headers. But

thank you so much and uh yeah, have a

great rest of the rest of the week.

>> Thanks. You too, Tom.

>> Bye, Tom.

>> Yeah. Bye.

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