Economics

How to respond

Across my articles and media commentaries, I have emphasised that preparing for an artificial intelligence (AI) re-pricing is not about timing a top or shorting tech, but rather about protecting capital through discipline, factor balance, and liquidity.

There are five primary strategies to insulate an investment portfolio from an AI re-rating:

1. Diversify away from equity index heavyweights

Broad, passive equity indices (such as the S&P 500 or Nasdaq) are historically concentrated. Passive flows into index funds mean a significant portion of an investor’s exposure is tied to six or seven AI-driven mega-caps.

Rebalance away from broad index funds that leave up to 60 per cent of equity risk tied to the AI trade. Investors might also consider locking in recent gains and diversifying equity exposure across unsung, non-AI themes. continue…

by Roger Montgomery Posted in Aura Group, Economics, Insightful Insights, Investing Education, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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Last week, Google reported its first ever quarter of negative cash flow, surprising analysts who thought Q1 2027 would be when pressure on cash flows could seriously emerge, and causing the share price to plunge more than seven per cent.

With the clear exception of Tesla, most of the Mag 7 once deserved high earnings multiples because they were asset-light businesses with competitive advantages that didn’t require money to be defended. The artificial intelligence (AI) race has quickly eroded those moats and their characterisation as asset-light, because, over the last two years, they have had to spend hundreds of billions building data centres to remain competitive. continue…

by Roger Montgomery Posted in Economics, Insightful Insights, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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I joined Juliette Saly on Ausbiz to discuss how the rise of passive investing is reshaping markets. With ETFs and index funds now dominating trading, quality-focused active managers are struggling as money flows into the biggest index constituents regardless of valuation or fundamentals. While this trend may continue for some time, market cycles eventually turn, and when they do, companies with strong fundamentals, high-quality balance sheets and durable cash flows are likely to come back into favour.

Watch the episode here: The “profitless rally” Roger thinks could end badly continue…

by Roger Montgomery Posted in Economics, Editor's Pick, Global markets, Insightful Insights, Investing Education, Market commentary, Market Valuation, TV Appearances.

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When I wrote Value.able in 2010, ‘Quality’ as an investing factor was gospel, a foundational truth: buying fundamentally superior businesses at reasonable prices and holding them over the long run was the surest path to wealth creation.

Individuals like Warren Buffett, Charlie Munger, Mohnish Pabrai, Seth Klarman, Howard Marks and Terry Smith proved, over decades, that Quality rules. Superior Return on Capital Employed (ROCE) or Return on Equity (ROE), high gross margins, and consistent Free Cash Flow (FCF) conversion inevitably compounded a company’s equity, and ultimately produced outsized returns for investors in those businesses. continue…

by Roger Montgomery Posted in Economics, Editor's Pick, Insightful Insights, Investing Education, Market commentary, Market Valuation.

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In my latest article for The Australian, I argue that the S&P 500 is no longer the diversified benchmark many investors believe it to be. With an increasing share of the index now driven by the artificial intelligence (AI) theme, concentration risk is at extreme levels. History suggests these periods don’t last forever, making quality companies and genuine diversification worth a closer look.

Download the article here: AI boom turns S&P 500 into a dangerous bet

by Roger Montgomery Posted in Economics, Editor's Pick, Global markets, In the Press, Investing Education, Market commentary, Market Valuation.

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I joined Kylie Morris on ABC Newcastle Mornings to discuss the impact of Labor’s changes to negative gearing and capital gains tax (CGT) on the housing market. We looked at why first home buyers may be finding it harder to enter the market, the effect of tighter lending rules, and how changes to self-managed superannuation borrowing could affect housing supply.

We also touched on ASIC’s record civil penalties over the past financial year and why it’s important that companies engaging in misconduct are held accountable.

Tune in from 35:50 on ABC Newcastle Mornings continue…

by Roger Montgomery Posted in Economics, Radio.

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Treasurer Jim Chalmers stepped up to the dispatch box in May 2026 to announce a sweeping overhaul of negative gearing and capital gains tax (CGT).

By stripping negative gearing from established properties purchased after May 12 and swapping the 50 per cent CGT discount for an inflation-indexed method and a 30 per cent minimum tax floor from July 2027, the Albanese Labor Government claimed to be setting out to achieve a progressive holy grail. Putting aside that this was nothing more than another tax grab to plug a budget hole born of profligate spending, fiscal waste and mismanagement, they claimed to be tilting the playing field away from wealthy property hoarders and toward aspiring young first-home buyers.

Two months later, the early data is in. And while the reforms have successfully detonated a bomb under housing market activity, the fallout has been completely twisted. Instead of ushering young Australians into their dream homes, Labor’s housing policy has locked them out faster than ever. continue…

by Roger Montgomery Posted in Economics, Market commentary.

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Many years ago, I was asked by an AFR journalist whether I would revise my valuation of ABC Learning Centres, which was a tiny fraction of the traded price at the time, given the Singaporean Sovereign Wealth Fund (Temasek) had just invested in the company’s then-latest capital raise at a much higher market valuation.

Full of youthful confidence, I responded: “stupid people live in all different countries.”

A familiar pattern of fundraising and deployment was playing out at ABC Learning. It was one I had seen before and one which often resulted in pear-shaped returns for equity investors. That was certainly the case at ABC, which subsequently blew up spectacularly. continue…

by Roger Montgomery Posted in Economics, Global markets, Insightful Insights, Investing Education, Market commentary, Market Valuation, Popular, Technology & Telecommunications.

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There is an old political adage that if you want to understand a government’s true philosophy, don’t look at its speeches, look at its accounts.

Under Labor, Australians have been treated to a masterful exercise in political misdirection. The old ‘bait-and-switch.’

On one hand, the government trumpets marginal, highly structured tax cuts – like the Working Australians Tax Offset (WATO) – to soothe voters battered by cost-of-living pressures. On the other hand, a quieter but more profound structural shift is taking place across the Australian economy.

It may sound extreme and even alarmist, but federal Labor’s economic model is built entirely on a singular, stubborn premise: the wealth generated by the private sector is nothing more than uncollected revenue waiting to be harvested by the state. continue…

by Roger Montgomery Posted in Economics, Market commentary.

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I joined Jess Maguire on ABC Statewide Drive to discuss the latest ANZ Roy Morgan Consumer Confidence Survey, which shows confidence is gradually recovering after falling to its lowest level in 53 years, while remaining fragile amid high household debt, rising rents and ongoing cost-of-living pressures. We also discussed the successful ASX debut of FDC Consolidated, highlighting its strong growth, specialist construction and fit-out business, attractive forecast yield and why its listing may signal renewed investor appetite for high-quality IPOs.

Listen from 1:46:00 here: ABC Statewide Drive  continue…

by David Buckland Posted in Economics, Insightful Insights, Market commentary, Market Valuation, Small Caps, Stocks We Like.

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