“When a regime change occurs the greatest risk for any investor is to get all the right answers to all the wrong questions.”
2025 Q4 Newsletter
By Jason Lesh, Managing Principal
There is a lot of noise in the financial world right now, and it can often feel like the "old rules" are being rewritten. In the commentary that follows, our Portfolio Manager, Nick, dives into the concept of a "regime change" in the global economy. While the term sounds heavy, I wanted to share why Nick and I actually feel a great deal of confidence - and even optimism - about how we are positioned for what lies ahead.
Nick points out that many investors are currently getting "all the right answers to all the wrong questions". They are clinging to a traditional 40-year-old playbook that may no longer be equipped for today's reality.
Because we have anticipated these shifts, we aren’t reacting to the news; we are executing a plan. Our strategy remains rooted in the timeless foundation of Value Investing, but with a modern lens on protection:
A Broader View of Diversification: We have moved beyond the traditional 60/40 model to a "40/20/20/20" style. By including global equities, commodities, and gold, we are building a portfolio designed to thrive even as the dollar’s role evolves.
Hyper-Vigilance as a Strength: We are obsessively focused on risks like "financial repression". This vigilance allows us to stay calm and opportunistic while others may feel overwhelmed by volatility.
Confidence in the Path Forward: These tenets do more than help us sleep well at night; they are designed to provide the resilient, risk-adjusted returns that your long-term goals require.
We feel very good about the "drum we've been banging" for the last few years. While the world changes, our commitment to protecting and growing your hard-earned savings remains absolute.
I encourage you to read Nick’s commentary below to see exactly how we are putting these pieces together for you.
Wishing you all the best,
There is a tremendous amount of noise currently in financial markets. We’ve lived and invested with a system for 40 years and we’ve learned what questions to ask, what to look for and therefore how to invest. The problem is, as Russell Napier points out, we as investors have all the correct answers to all the wrong questions. While the constant headlines are overwhelming, the real story is the disruption facing global financial markets, specifically concerning capital movement, inflation, and the global monetary system. From strictly a financial perspective we face an existential risk during this transition of monetary world order. Enter financial repression or the purposeful devaluing of the dollar to bring debt levels back to normal so our economy can function normally and finally return to growth post crises.
The prescription for this existential risk of financial repression: diversification. But not the question of diversification that we have answered for the last 40 years. Not the 60/40 type that financial advisors have advocated for, but the 40/20/20/20 type. This probably sounds funny, but it communicates a difference. A few investors have been discussing the dangers of over concentration in the traditional 60/40 portfolio. We believe financial repression calls for a different style of diversification. Unfortunately, it has fallen on deaf ears. We have been banging this drum for several years now.
For investors looking to grow and preserve their hard-earned savings, diversification is the most important anecdote. This should include global equities (not just the S&P 500 type), bonds, commodities and cash (ST treasuries). Most investors are woefully under allocated to commodities, and international investments. Of course, why would they need to diversify when the S&P 500 just goes up every year (sarcasm intended).
Why not gold at least? After all it has outperformed the S&P 500 over the last 25 years…cue the scratching record…what? Yes. Gold has outperformed the S&P 500 for 25 years! Why?
THE most important issue facing investors today are debt levels. And the cascading political and social consequences. Debt levels are extreme across the world either in the public sector, private sector or in some cases both. There are only 5 ways out of this predicament:
Austerity-not going to happen
Default-not going to happen
High Growth-hope is not a strategy
Hyper Inflation-not going to happen
Financial Repression-already underway since 2022
Which of these options are the most palatable? Obviously high growth or financial repression are the only palatable options.
AI has many hoping that a new paradigm of technology will help grow our way out of this debt morass. The problem is, technology almost never brings down the aggregate level of inflation, therefore real growth could be elusive.
This makes financial repression the most likely outcome. I have discussed financial repression before and we have been well positioned for it over the last several years. Rather than rehash the benefits of commodities (ie. gold, energy and the like), I think I’ve spent enough time on that over the years, I want to talk about another important concept.
If real growth is difficult to come by, perhaps that is what we should be attracted to. Where can we find real growth that is not priced to perfection? Small/Micro cap stocks. They are coming off a horrendous performance streak over the last several years. This is the type of setup we get excited about. I have no idea how the asset class will perform in 2026, but I have strong conviction that the smaller businesses have been ignored and are priced much more attractively that the S&P 500 and therefore will provide a much better risk adjusted return.
Our commitment at PWM is to implement a strategy that prioritizes the longevity and endurance of your hard earned capital. Integrating a diversified portfolio with a strategic allocation to small stocks is a testament to this philosophy. It is about ensuring that your portfolio is positioned for appreciation when conditions are favorable. And when we get an inevitable correction, we have done the work ahead of time and know where to allocate new capital. I believe this is a strategy that is truly unique. We must endure periods of disruption, safeguarding your accumulated wealth for your future needs.
We appreciate you entrusting us with stewarding your hard earned, irreplaceable savings. If there is anyone you know or care about who you think might benefit from this information, please feel free to share it with them. As always, we welcome your feedback, reactions and critique's. We hope you will find this information valuable and validating.
