Why Concentration Feels Risky

In this first episode of 2026, we sit down for a deep dive into one of the hottest concerns coming from clients and listeners lately: Is the U.S. stock market dangerously concentrated—and are we in an AI bubble? Ben, Dan, and Ben unpack the data, the history, and the psychology behind today's valuations, drawing lessons from past episodes of market euphoria such as Nortel in Canada, the dot-com boom, and Japan's 1989 peak. They explain why high market valuations—not concentration—pose the bigger challenge, how bubbles historically fuel real economic innovation while hurting investors, and why diversification continues to offer the only reliable protection against unknowable futures. Along the way, they revisit examples of how value stocks, small-cap value, and global diversification have fared across different market regimes.

Key Points From This Episode:

(0:00:40) What RR is about: evidence-based insights, synthesis episodes, expert interviews, and long-form inquiry — not debates.

(0:04:20) Why listeners value RR: transparency, friendly inquiry, returning to topics over time, and the hosts' dynamic.

(0:09:25) Rising concern: clients asking whether U.S. market concentration and an AI bubble mean it's time to exit stocks.

(0:11:10) Advisors echo similar worries: U.S. politics, all-time highs, and emotional decision-making.

(0:14:20) Today's data point: Top seven U.S. stocks = 36% of S&P 500; 32% of the total U.S. market — highest on record.

(0:16:10) Why people fear concentration: a decline in the Magnificent Seven could meaningfully drag down the index.

(0:17:30) Canada's cautionary tale: Nortel once hit 36% of the TSX — collapsed to zero — but the market recovered by 2005.

(0:21:20) Bubbles through history: canals, railways, fiber optics, dot-coms — innovation funded by speculation.

(0:25:30) Dot-com parallels: huge ideas, low cost of capital, lots of failures — but lasting infrastructure remained.

(0:28:40) AI dominance: Since ChatGPT, AI-linked companies drove 75% of S&P returns, 80% of earnings growth, 90% of capex.

(0:31:15) Reminder: No bubble calls — just context. High prices don't equal an inevitable crash.

(0:33:10) Concentration vs. valuation: concentration shows weak links to future returns; valuations matter far more.

(0:35:05) Market timing trap: U.S. valuations were high in 2021 — selling then would have been disastrous.

(0:36:40) The U.S. lost decade: 2000–2010 returns were flat; in CAD, recovery didn't happen until 2013.

(0:38:55) Value stocks held up: U.S. value and small-cap value delivered positive returns while broad indexes stagnated.

(0:41:00) Recency bias reminder: Canadians once avoided U.S. stocks entirely after a decade of underperformance.

(0:44:05) Japan 1989: World's largest market crashes — still not recovered in real terms 36 years later.

(0:47:10) Global diversification wins: A 40% Japan-weighted global portfolio still performed fine thanks to U.S. growth.

(0:49:00) Cross-country data: Many markets are far more concentrated than the U.S. — still delivered solid returns.

(0:52:30) Valuation evidence: Higher CAPE = lower future returns — economically strong pattern across countries.

(0:55:40) Core lesson: Diversification + discipline. You will always hold winners and losers — that's the point.

(0:57:55) Practical ways to lower concentration risk: global equity funds, small caps, and Canada's 10% cap rule.

(1:00:30) Why active managers don't help: only ~30–47% outperform depending on concentration trend.

(1:03:25) Final takeaway: high valuations may imply lower returns, but prediction is impossible — stay diversified.

(1:05:15) After-show review: Addressing a one-star critique ("Fartcoin Designer") with humour and community context.

Links From Today's Episode: Meet with PWL Capital: https://calendly.com/d/3vm-t2j-h3p

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/

Rational Reminder on YouTube — https://www.youtube.com/channel/ Benjamin Felix — https://pwlcapital.com/our-team/

Benjamin on X — https://x.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/

Cameron Passmore — https://pwlcapital.com/our-team/

Cameron on X — https://x.com/CameronPassmore

Cameron on LinkedIn — https://www.linkedin.com/in/cameronpassmore/

Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)