Markets rarely announce their turning points. Excess tends to build quietly, reinforced by strong returns and reinforced narratives, until discipline feels unnecessary. That dynamic was front and center on the latest episode of Lead-Lag Live, where host Melanie Schaffer sat down with Seth Cogswell, Managing Partner at Running Oak Capital, to discuss why today’s market environment is beginning to echo some of the most uncomfortable periods in modern investing history.
A Market Cycle Stretched Too Far
Cogswell’s central argument is that the market cycle has been stretched well beyond historical norms. Years of monetary intervention and policy support have delayed the normal process of economic reset, leaving excesses unresolved. Rather than periodic corrections clearing out inefficiencies, distortions have accumulated.
Nowhere is this more visible than in market concentration. A small group of mega-cap stocks dominates index performance to a degree that surpasses even the peak of the late-1990s technology bubble. Valuations among these leaders are materially higher, while their collective weight within the market has grown meaningfully larger.
That combination, high valuation paired with extreme concentration, creates fragility. When leadership narrows, markets become less resilient to disappointment, even if the broader economy appears stable.
AI Optimism and the Fragility of Expectations
Artificial intelligence has become the primary justification for elevated valuations and aggressive capital spending. Cogswell is careful to distinguish between long-term technological promise and short-term market pricing. His concern is not that AI will fail, but that expectations embedded in today’s prices allow little room for error.
Massive capital investment is underway before clear evidence of sustainable profitability or returns on invested capital has emerged. Much of the current enthusiasm depends on continued exponential growth assumptions. If those assumptions falter, even modestly, the consequences for market leaders could be outsized.
History suggests that when a single narrative becomes the cornerstone of market confidence, risk is no longer incremental. It becomes binary.
Investors All In, Risk Left Out
One of the most striking observations from the conversation is the extent to which households are exposed to equities. Equity ownership as a share of household net worth now exceeds levels seen at the height of the tech bubble. This marks only the second time in history that equities have overtaken real estate in household balance sheets.
At the same time, risk has largely disappeared from mainstream investing conversations. Passive strategies and index-based exposure have delivered strong results for years, fostering the belief that drawdowns are temporary inconveniences rather than structural features of markets.
Cogswell emphasizes that returns and risk cannot be separated. Ignoring risk does not eliminate it. It simply delays its recognition.
Discipline as the Portfolio’s “Designated Driver”
Rather than advocating dramatic exits or bearish positioning, Cogswell argues for balance. Investors can still participate in innovation and growth, but portfolios should also be designed to withstand disappointment.
He likens disciplined, valuation-aware strategies to a designated driver at a party that has grown increasingly reckless. Participation continues, but with an emphasis on capital preservation when conditions change. Historically, this approach has meant smaller drawdowns and greater durability during market stress.
The goal is not to predict when excess unwinds, but to ensure portfolios are positioned to endure when it does.
Why Critical Thinking Matters Now
Beyond portfolio construction, the discussion turns to a broader concern: the erosion of critical thinking in markets. Social media, narrative-driven investing, and passive capital flows have made it easier than ever to follow consensus without questioning assumptions.
Cogswell argues that investor education and engagement are essential defenses against complacency. Investors who understand why they own what they own are more likely to remain disciplined when volatility returns and narratives shift.
The Bottom Line
Markets can remain detached from fundamentals longer than expected, but excess rarely resolves itself gently. Concentration risk, speculative capital spending, and widespread complacency have created conditions that call for humility rather than confidence.
As this episode of Lead-Lag Live makes clear, discipline is not about forecasting a downturn. It is about preparing portfolios so that whatever comes next does not derail long-term financial goals.
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Running Oak and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
