Enlightenment - A Herold & Lantern Investments Podcast

Reading, Patience, And Markets In Motion

• Keith Lanton • Season 7 • Episode 48

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December 29, 2025 | Season 7 | Episode 48

We review why 2025 defied cautious forecasts, from AI capex and policy-driven depreciation to lower oil and a powerful wealth effect, and we frame 2026 through Munger’s lens of patience and clarity. We flag key risks, make the case for a return to quality, and explore copper’s setup alongside a closer look at Salesforce.

• Munger’s principles on patience, reading, and realism
• Why 2025 beat expectations despite tariffs and inflation fears
• AI buildout surge fueled by accelerated depreciation
• Oil’s drop easing costs and supporting margins
• Wealth effect and democratized access driving flows
• Bonds’ weak real returns pushing investors into equities
• Risks from rates above 4.25% and geopolitics
• Barron’s angle on quality stocks and FCF ETFs
• Salesforce as an AI-enabled operator, not a victim
• Commodities review with copper’s 2026 bull case

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For more information, please visit our website at www.heroldlantern.com


** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.

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Alan Eppers:

And now introducing Mr. Keith Lanton

Keith Lanton:

Good morning. Today is Monday, December 29th. Last week of 2025, and also the first week of 2026. So a lot to talk about as we wind down year-end. Of course, got a few days left, three trading days left to manage gains and losses for fiscal year 2000 and or calendar year 2025. This morning we are gonna look back on 2025 and after two strong years, 2023-2024. A lot of the experts were suggesting 2025 would be a challenging year. We're gonna talk about what the experts got wrong this year and try and provide some insights into 2026. Also gonna have some words of wisdom from Charlie Munger, who left us last year. This as his partner, Warren Buffett, is stepping down on December 31st, handing the reins over at Berkshire Hathaway to Greg Abel. So some some advice from the Berkshire folks, and we will take a look at today's markets and and news and talk about Barons, who is cautiously optimistic about 2026, despite some very strong returns in 2025. Barron's also talking about quality stocks. We'll talk about an individual stock idea, we will talk about commodities, so a lot to look forward to. Want to wish first and foremost everyone a very happy and healthy and prosperous new year and to reset the mind going into 2026. I'll start with some some quotes here from Charlie Munger to get that thought process going. And when we think about Berkshire Hathaway, we think about the tremendous patience that they've had, and Warren Buffett has often said that he has gotten lots of his advice from Charlie Munger, and Charlie Munger has said it takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities. So when you think about your portfolio and you're thinking about being bored, or you're thinking, you know what, it's December 29th, I got nothing to do. What should I do today? Maybe I'll make some changes to my portfolio. Think twice. Make sure that you really see the whites of the eyes before you pull that trigger. Here's one for some self-reflection. Whenever you think something or some person is ruining your life, it's you. A victimization mentality is so debilitating. And one thing that both Warren Buffett and Charlie Munger have said over and over, and they're not sitting in front of their desks looking at quotes. What they are doing is reading. And what he said is in my whole life I have known no wise people who didn't read all of the time. Back to looking for opportunities and markets and how you are successful over long periods of time. We look for a horse with one chance and two of winning, which pays you three to one. When thinking about your current situation, he says recognize reality even when you don't like it, especially when you don't like it. We all have this system sometimes, maybe it's a self-defense mechanism of changing reality within our own minds, and that can lead to lots of mistakes. When talking about investing choices, he says anytime anybody offers you anything with a big commission and a 200-page prospectus, don't buy it. And when you feel compelled to catch up on all the news, read every story, watch every financial news show, keep in mind that Charlie Munger says to keep it simple, keep it focused. Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world. And back to patience. The big money is not in the buying and selling, but in the waiting. And when it comes time to engage in discourse and offer opinions, he basically says, keep your mouth shut unless you really know what you're talking about. I never allow myself to have an opinion on anything that I don't know the other side's argument better than they do. And then finally, I'll conclude with one that I think is very apropos to the current market where we've had three tremendously strong years in stocks, where Charlie Munger says, bull markets go to people's heads. If you're a duck on a pond and it's rising due to a downpour, you start going up in the world. But you think it's you, not the pond. And finally, one quote here from Marcus Aurelius, and this was true in the Roman Empire almost 2,000 years ago, and I think it's true today in the United States of America, as we oftentimes distract ourselves and get frustrated with what's going on, whether you you know your whatever your political ideology is, you get all caught up in in what you know the other side may be saying or doing. And he said, Marcus Aurelius said, You have power over your mind, not outside events. Realize this and you will find strength. So this morning we're seeking strength, and we oftentimes get strength in our knowledge and looking backwards. So let's take a look here at 2025 and see what the experts said, see what happened, and see what we can learn from it. So coming into 2025, many had suggested that markets were richly valued, that we were possibly looking at single-digit returns. I think that was a pretty widespread common theme. Of course, not every single person said it, but very overwhelming majority suggested that 2025 would be lackluster. We had President Trump coming into office, and there were tremendous concerns about tariffs, about inflation, and we had experienced very strong markets. 2023 we were up twenty six percent. Two thousand and twenty four, we were up twenty-five percent. And so far, year to date this year, not too disappointing, 17.8%. So if you look at your total return, if you were just invested in the S P 500 since January of 23, so we're talking about three years, you'd be up almost 70%, 69.83%. So that's quite significant performance heading into 2026, and many of the experts are suggesting that perhaps we can keep keep the good times going, although again expecting a more muted returns in 2026 again in general by and large. But what were the experts saying? What were the concerns going into 2025? Well, going into 2025, there were lots of concerns about tariffs. We had Liberation Day, lots of concerns that trade would grind to a halt. There was lots of concern, justifiably so, about inflation, lots of focus on the price of commodities, especially the price of eggs. We were and continue to be worried about the deficit and whether or not the United States deficit is sustainable, and that's certainly continuing concern and and worry. There was immigration certainly was a big theme, and what what it would mean if immigration slowed here in the United States, what that would mean for housing prices, job markets, labor shortages. So these fears, while certainly legitimate, did not pan out because lots of attention was focused on those fears, but they were overwhelmed by other factors that arguably got attention, but but but not as much attention as they should have because they were the themes that truly carried the day. And I would say that the primary theme, and it got lots of attention, was artificial intelligence. But artificial intelligence, in terms of the build-out, the amount of money that was spent to build out artificial intelligence, and why did so much money get spent building out artificial intelligence? Of course, there's a tremendous opportunity, but arguably the biggest reason that there was so much spending on artificial intelligence comes back to the big beautiful bill. And the big beautiful bill on January 19th, the day President Trump got inaugurated, was the day that accelerated or bonus or depreciation expense for corporate America was accelerated. You could write off almost the entire cost, in many cases, the entire cost of lots of investment, and this added further fuel to the spending on artificial intelligence. And if you take a look at the spending on artificial intelligence in in 2025, data center infrastructure spending up 86%, artificial intelligence server spending up 91%. These are the themes that overwhelmed the concerns about tariffs, overwhelmed the concerns about inflation was the fact that we had so much spending going into the build-out of artificial intelligence, and a lot of that had to do with the big beautiful bill and that depreciation provision. The other event that occurred in 2025 that I think has gotten less attention than it should have, that has been a big force in propelling markets and the economy higher are oil prices. Oil is an input into so much of the economy, especially transportation, oil going into all sorts of clothing. Obviously, it's you know, oil is a factor in in providing energy for homes, for for heat, for petroleum, of course, and oil prices are down twenty four percent this year. So there's been lots of talk about inflation. There certainly has been lots of inflation, but one of the big factors offsetting some of that inflation has been oil prices. Also the wealth effect having a significant impact on financial market performance, the markets being up in 2023, 2024, 2025, almost 70% return. The wealthy, the K economy, as folks like to call it, the upside of that K being the wealthy, downside of that K are the folks who don't have as much in assets. Well, those folks who have the assets they are looking at significant appreciation of their portfolios, and therefore they are experiencing meaningful wealth increase, and they are spending some of that wealth increase, and that is the other factor propelling the financial markets. Now you may say to yourself, will this continue? And I think the answer, as always, is it depends. But one of the other big factors that's been propelling the financial markets higher is the fact that there's been lots of demand for stocks. People have been buying stocks at record pace. Money has been flowing into the stock market. Now it's a self-fulfilling prophecy, a flywheel. You have markets going up, people feeling wealthier, therefore they put more money into markets, therefore the economy gets better, and then it all feeds on itself, and it is a slippery slope, one big slip-off, and you could have a big down movement in these in these markets. But investors are rational, so why are we seeing investors pour so much money over the last several years into financial markets? Well, I would say it's it's the wealthy, and it's also the young people who are investing in financial markets at a record rate. I mean, it's not because they're irrational, it's because things are progressing. Technology is changing. It is a lot easier to invest in financial markets today. If you go back 25, 30 years ago, you had to call a person, get them on the phone, you were a young person, you didn't have the relationship, you didn't know how to do it, so young people were a lot less likely to be investing in the market. Also, you had information, not at the fingertips of the younger people, because that information was at the at the hands of the brokers who had quote machines in front of them, , who had Dow Jones News Service in front of them, the rest of the world didn't have that. It really wasn't worth the time of those people to talk to the smaller investors, so the smaller investor really didn't have access to the real-time information. They weren't engaged in the markets, but now they are. But they have choices. Individuals have choices. You can invest in stocks, you can invest in bonds, you can invest in commodities, which certainly have had a tremendous return. We'll talk a little bit more about that. But investors have been very rational, and the Federal Reserve has created a strong incentive to buy stocks, and this is something you want to keep an eye on if this incentive remains. So if you go back to 2020 and you are to look at what the inflation rate has been, and you were to look at what the return on, let's say, a five-year treasury has been after tax, if you were to look at this return every year from 2020 to 2024, you will find that there has been one year, since 2020, one year where you have gotten a positive real return when you buy a five-year treasury, you compare it to the CPI, you pay tax at about 30%, and that was 2024. And your one-year return in 2024, on that five-year treasury bill, your real return, 0.1%. So in 2020, if you had bought a five-year treasury, paid a little bit of tax, compared it to the inflation rate at the end of the year, you would have been down in real terms. Not only real terms, but in reality, you'd be down one percent. 2021, you would have been down four percent. 2022, you'd be down six percent. 2023, you would have been down one percent. 2024, I just mentioned that's your big up year, up 0.1%. And this year you'd be just about even if you bought the five-year treasury, paid 30% tax on it, compared it to the to what your inflation was, and that's based on the CPI. Some people would say CPI is perhaps a very generous understatement of inflation. So over the last five years, if you had bought the five-year Treasury, your cumulative return would be that you're down about 12% over the last five years. So the Federal Reserve has created a strong incentive to continue to invest in stocks on top of the fact that we are also subject to something called recency bias. We have not had recently any significant drop in markets. Human psyche has not experienced the pain of a bear market since 2007 to 2009 of a significant prolonged magnitude. Therefore, we have minimized the amount of pain that we are seeking to avoid. Humans like to avoid pain. There was a lot of pain in 2007, 2008, 2009. That was now a long time ago. It fades in our memory, even though it was very painful. Many of the investors today did not experience that. So the incentive to own stocks, both psychologically as well as rationally, is and remains high. So what could trip us up heading into 2026? Well, the very factors that caused this momentum in 2025. If we were to see inflation tick up meaningfully, that would be something that that could ultimately create concern for for financial markets. In fact, when the 10-year treasury has gone above about 4.25%, markets have struggled. So keep an eye on that. We're at about 4.13%. Of course, keep an eye on geopolitical events, tensions between the United States and China. This morning, China is conducting military exercises off the coast of Taiwan. If that were to flare up further, that's something to remain vigilant of and to be concerned about. So these are the things to to remain on your radar as we head here into 2026. So taking a look at financial markets here this morning, we are seeing futures this morning edging downward just modestly. Dow futures are down 66, SP futures down 22, Nasdaq futures about 126 points to the downside. A lot of this being attributed to some profit taking this morning. The artificial intelligence trade coming under a bit of pressure. Nvidia is down about 1%, Micron and Oracle down about 2%. Last week NVIDIA was up 5%, Oracle was up 7%, Micron was up 7%, Oracle was up 3%. On Friday, the SP hit an intraday high of 6,945. Year to date, I mentioned SP is up 18%, Dow is up 14.5%, and the Nasdaq has outperformed and is up 22%. We are in the midst of what some would call a Santa Claus rally period, strong time for the stock market since 1950. CNBC reporting the SP has gained an average of more than 1% in the last five trading days of the year and the first two days of the following year. Economic calendar right now is fairly light. The big news this week is one more read into the Federal Reserve's thinking when we get we get the minutes from the December meeting being released Wednesday, which is the 31st at 2 o'clock. Financial markets full day, last day of the year, December 31st. Markets are closed January 1st on Thursday. We have reports over the weekend that President Trump and Ukrainian President Zelensky met, and indications are that they are close to a deal, again, between the war between Ukraine and Russia, although President Trump acknowledged there are one or two very thorny issues that remain unresolved. The United States, in their plan, was talking about security guarantees of about 15 years. Some work to be done to resolve those significant differences. This morning, Alphabet stock down on concerns about Waymo, their self-driving cars, outages. In the San Francisco area, there was a power outage, the cars just stopped in their tracks, they didn't know what to do when there were no no power to the traffic lights, so a little bit of pressure there on Alphabet. Novo Nordisk, GLP1 company lowering the price of Wagovi in some Chinese provinces by 50%. Softbank stock up about 1% there in advanced discussions to acquire Digital Bridge Group. Symbol there is DBRG. This is a company that involved in in servers and artificial intelligence. Markets in Asia, mixed start to the week, Korea up big 2.2%, Japan down four-tenths of one percent, Hong Kong down seven-tenths of a percent, and the Shanghai is unchanged. Major European markets near their flat lines. Big story in Europe is the military contractors are under pressure, under growing hopes that a Russia-Ukraine peace deal could be finalized in the coming weeks. Oil prices this morning moving higher, perhaps in response to the fact that we don't have a deal between Russia and Ukraine. I think heading into the weekend, perhaps some optimism that we would see one. Also, we're seeing a meaningful pullback in commodities. This going back to the profit taking thesis when we were talking about artificial intelligence stocks. Same same thesis here, but in in commodities which have a big Run up this year, gold is down $70 an ounce, silver down $266 to $74.50. Silver overnight had touched $80, so meaningful pullback. Even copper, which was higher earlier this morning, is down almost 3.5%. Wall Street Journal reporting that large employers are not planning to hire next year. Bloomberg reporting that China is aiming to broaden fiscal spending next year. And CBS News reporting that the flu cases are surging nationwide. Doctors are cautiously optimistic that perhaps we are at or near a peak. Today we do get a couple of data points on the real estate market, pending home sales expected to increase eight-tenths of a percent. Tomorrow we get the Case Schiller index expected to show that home prices rose 1.1% last week. Mentioned the minutes, Fed minutes coming out, I think I said Wednesday, but they are coming out Tuesday for the federal minutes from the Federal Reserve. So speaking about Barron's transitioning, Barron's saying stock market price for perfection can still have a very good year, so cautiously optimistic getting into 2026. And the last week we saw markets up across the board, depending on what index you're looking, a little over 1%. At the same time, volatility all the way down if you're looking at the volatility index or the VIX as some people call it was below 14% on Wednesday, first time it went below 14 in more than a year. Looking forward to 2026, what you want to keep your eye on, we mentioned interest rates. Certainly equally as important is earnings growth, which is expected to come in somewhere between 13 and 15%. Keep a good eye on profit margins, expected to be in the ballpark of 14%. So if we're able to achieve that sort of growth, that would be something that would be more indicative of continuing what's been going on in the last three years. Mentioned some of the concerns as well heading into 2026. What Barron says to look for in 2026 are what they are calling quality stocks, which they say are trading at a 40% different discount to the market. Everybody's got a different definition of quality stocks. I'll share what Barron's thinks represent quality stocks. But what they do say is that the lowest quality stocks, the most speculative stocks, have beaten high quality ones by 50 percentage points since Liberation Day. So the companies that are the most speculative have done the greatest returns in 2025. So analysts at some of the big banking firms suggesting that we could see a return to quality in 2026. And what they say is to look at some ETFs that they say focus things like cash flow, such as COWZ, which is cows, leans heavily on free cash flow. That ETF is about 10 years old. It has lagged the market over the last 10 years, but it is trading at 15 times earnings, a significant discount to the SP, which is in the 23 to 24 range. And if you were to look at the return on stocks that have heavy free cash flow yields over the last 30 years, that analysis would show that they typically outperform, although the last 10 years that has not been the case. A relatively recent ETF that has demonstrated good performance and also falling into the quality bucket is Victory Shares Free Cash Flow ETF. The symbol there is VFLO, Victory Fox Lucky Oscar. That was launched two years ago. It is running a few points ahead of the S P 500, and it doesn't just screen for free cash flow yield, it does that, but it also screens for sales and earnings growth. And despite that, it goes for about 14 times earnings. the expense ratio is 39 basis points, and the expense ratio on cows, COWZ, is 49 basis points. Company that has been a big winner, that has pulled back, that is in the that is in the software space, Barron speaking positively of is Salesforce, symbol Charlie Roger Mary, CRM. Barron suggesting that there's been lots of concerns about Salesforce and their CRM or customer relationship management software possibly getting displaced or made less necessary as a result of as a result of artificial intelligence. And Barron feels that those fears are misplaced. In fact, they think that Salesforce is starting to be able to adapt very effectively, and that the markets will start to realize that Salesforce is not so much as being threatened by AI, but able to benefit from AI. So Salesforce's annual recurring revenue from their artificial intelligence incorporation into their software called AgentForce has grown 333% year over year in the fiscal third quarter. Salesforce's profit margins, they say, are starting to improve from 15 percentage points in 2021 up to 33 percent this year. And they said that sales importantly are expected to rise 11% in 2025 over the 10% expectation. Salesforce trading relative to 2027, so we're going out, that's 27, is trading at about 17.6 times 2027, expected earnings of about $15 a share. So Barron's feeling that the market has been overly pessimistic. Salesforce stock down over 20% this year, and therefore things could be looking brighter in 2026. Changing gears to commodities, we've had a tremendous run-up in commodities here in 2025, silver up about 140%, not including today, gold up sixty-nine percent, and perhaps the lock lock the laggard, not perhaps, but the laggard of gold, silver, and copper. Copper is up only, when I say only, somewhat facetiously, 36%. But Barron suggesting that 2026 could be the year that copper becomes the leader of the metals. And it's not just gold, silver, and copper. Platinum was up 133% this year, palladium was up 95%, several analysts suggesting that copper, some have called copper Dr. Copper, because the performance of copper is highly correlated with the performance of the global economy, copper significant input into the build-out of artificial intelligence, data centers, big big contributor to electric vehicles, big contributor to solar, big contributor to batteries for for different advanced uses. So copper being a tremendous input into lots of the lots of the technology that is seen as being crucial to the future development, not just here, but but also in China. And the expectations are that we will see China, who has been holding back on copper purchases. Analyst at JP Morgan says that he expects that it'll be renewed Chinese buying. JP Morgan likes it for acute supply disruptions, fragile U.S. inventories. The UBS also out agreeing that that copper is the metal that may have the most upside in 2026. That's everything I've got.

Alan Eppers:

Thank you for listening to Mr. Keith Lantern. This podcast is available on most platforms, including Apple Podcasts and Spotify. For more information, please visit our website at www.heroldlantern.com.

Sophie Cohen:

Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. The material does not constitute research investment advice or trade recommendations.