Leverage changes the market because leverage creates forced behaviour. Consider a very simplified example. An investor owns $100 of stock using $50 of his or her own money and $50 of borrowed funds. The stock falls 20%.
The mathematics of leverage
The stock declined 20%, while the investor's capital declined 40%. That is the mathematics of the downsides of leverage.
Now imagine many investors facing similar constraints. A sharply falling stock may trigger a margin requirement, where the margin (a pool of required money an investor places with a brokerage to use derivatives or take on leverage) is insufficient for the investor to continue holding his existing positions.
The forced-selling cascade
The process can become self-reinforcing. This is why market crashes can move much faster than fundamental business deterioration.
Businesses do not generally lose 30% of their economic value in a few trading sessions. Markets can. A factory does not suddenly become 30% less productive at 1:37pm on a Tuesday. But a share price can fall 30% because the marginal buyer disappears and leveraged participants are forced to sell.
The Korean episode therefore deserves attention even outside Korea. It is a great example that shows how valuation, concentration, leverage, and market structure interact. Reuters reported that leveraged ETF assets associated with the Korean episode fell dramatically from their prior levels, with forced unwinding contributing to the intensity of the market adjustment.
The important lesson for a long-only investor is that he or she needs to recognize when the portfolio has become increasingly dependent on a single market narrative and de-risk accordingly.
The Most Rational Response to a Potential AI Bubble May Be Neither Buying Nor Shorting
Some new and inexperienced investors assume that if you are bearish about a sector, you should or even must short it. From a long-only, long-term investing perspective, an investor does not need to do so. An investor can simply own less of the stocks whose prices have gone up sharply.
This sounds trivial. It is actually one of the most powerful tools available to a long-only long-term investor.
Suppose artificial intelligence, technology, and semiconductor businesses represent 60% of an equity portfolio currently, after the very strong stock price increases of the last few years. The investor does not need to determine whether AI stocks will rise another 80% or fall 80% from here. He can ask a different question: “would I be comfortable if this group represented 42.85% of my portfolio after a 50% decline, assuming the other 40% of the original portfolio remains constant?”
The arithmetic
If the answer is no, the position size is probably communicating something important. The investor may reduce it to 30% of the portfolio right now. Then 20%, or perhaps even 15%. He retains exposure and upside while reducing concentration. He does not need a bearish forecast. This is genuine risk management.
The key difference is that de-risking is not necessarily a forecast that a decline will occur. It is an acknowledgement that the consequences of being wrong have become much more grave, with future risk-reward return asymmetry severely deteriorated from very rich valuations. That distinction makes a substantial difference psychologically.
May spend the next year or years anxiously watching prices, waiting to buy back in at a very low price.
Can remain calm.
The former has made a market prediction, while the latter has made a portfolio decision.
De-Risking Without Abandoning Quality
For a long-only, long-term investor practising a quality-value approach, de-risking does not automatically require abandoning high-quality companies and great companies that are true compounders by selling out of the position fully. Quite the opposite. It can mean becoming more selective about the price, valuation, and position size of high-quality stocks and true compounder stocks within the investment portfolio.
A high-quality semiconductor company, a high-quality AI software company, and a leading cloud infrastructure company can remain excellent businesses in the long term while their stock prices encounter great volatility, with multiple declines of 30% or more and corresponding sharp recoveries in the next few years or a decade. The relevant question is whether its current market price and valuation provide sufficient future return potential under conservative assumptions, regardless of the prior very strong returns it produced for your investment portfolio so far in the short to medium term.
This returns us to a fundamental quality-value principle: business quality, management quality, and valuation must work together.
A high-quality company trading at an indefensible price does not automatically satisfy a disciplined quality-value framework. Likewise, an extremely cheap company with deteriorating economics may not be attractive merely because its valuation looks very low. That is why de-risking from an expensive theme does not necessarily mean becoming defensive in the conventional sense. It can mean moving capital toward better asymmetric opportunities.
Enter the Anti-Bubble
This is where Nick Sleep's concept becomes particularly powerful. The phrase “anti-bubble” sounds as though it means simply buying cheap stocks. That is too simplistic. Sleep's original observation was about relative neglect.
When investors become fascinated by and obsessed with one part of the stock market, another group of companies may be ignored. Sleep described the anti-bubble as an area containing discarded businesses that could become interesting precisely because attention had moved elsewhere.
This creates a fascinating asymmetry. The fashionable company may be surrounded by enormous expectations. The neglected company may be surrounded by very low expectations. The fashionable company therefore needs to continually prove that its extraordinary future, already embedded in its current stock price, will materialize. The neglected company may only need to perform reasonably well to produce strong returns over the next decade. That creates a different margin for error.
Imagine two businesses, both with a wide economic moat.
Illustrative hypothetical, not a reference to any real company.
Company A may ultimately become the better business. Company B can still be the better investment.
Why? Because future investment returns arguably depend on the price paid. Note that the only exception to this rule is great businesses and true compounders comprising a very small fraction of a country's stock market that consistently outperform extraordinary expectations placed upon them for multiple decades — a concentration effect documented in Arizona State University Professor Hendrik Bessembinder's 21 March 2026 research, “One Hundred Years in the U.S. Stock Markets.” The paper reports that just 46 of the 29,754 U.S. common stocks studied over the full 1926–2025 century accounted for half of all net shareholder wealth created — an intensification from the 89 of 25,383 firms, or approximately 0.35%, that accounted for half of net wealth creation over the shorter 1926–2016 period covered in Bessembinder's original 2018 study.
If Company A eventually grows into its valuation over more than 10 years, the investor may earn a mediocre return despite owning an exceptional company. If Company B grows modestly while its valuation rises toward a more normal level from a very depressed level in the typical reversion to the mean, the investor can potentially earn a strong return from both earnings growth and valuation normalization.
The second business may be boring. That may be precisely the point.
Boring Can Become Beautiful
Financial markets often reward excitement. Investors discuss:
Far fewer conversations occur about:
This creates a subtle opportunity. A business does not need a compelling story to compound value. It needs compelling economics.
Consider a hypothetical consumer-staples company.
It grows revenue at 5%.
Operating and net profit margins remain stable.
Returns on invested capital are consistently high.
Debt is modest.
Free cash flow is consistent.
The company buys back shares at sensible prices.
It has pricing power where its products are purchased repeatedly.
It requires relatively little capital to maintain its operations.
The business may appear profoundly boring. Yet an owner could become wealthy if the company consistently produces higher free cash flow and makes smart capital allocation decisions for decades.
This is where a quality-value investor differs from a trend-chasing momentum investor.
“What could become the next 10-bagger?”
“What business can continue creating value per share for a very long time?”
Why Defensive and Anti-Bubble Stocks Can Attract Capital During Stress
There is a reasonable economic mechanism behind the idea that capital can rotate toward businesses perceived as safer during periods of market stress and severe stock market crashes. It is incorrect to assume that every consumer staples, healthcare, or other similar stock in a boring, safe industry will automatically rise during every stock market crash.
In severe crises, correlations can increase, and almost everything can decline. Cash needs can force selling across sectors. Institutional investors can face redemptions. Risk limits can force liquidation. Therefore, “safe” does not mean “guaranteed to appreciate.”
A much more nuanced statement is: high-quality, financially strong, and less economically sensitive businesses become relatively much more attractive to long-only institutional and long-term investors during periods of very high volatility, when investors become less willing to pay extreme prices for growth. This can create a rotation in relative valuations.
Suppose the market has two groups: high-growth businesses trading at very high valuations, and high-quality, stable businesses trading at modest valuations because investors consider them boring or too safe. During a speculative phase, the first group will greatly outperform the rest of the stock market. During a risk-off phase, expectations can reverse. Investors begin caring more about cash generation, balance-sheet strength, earnings stability, dividend sustainability, pricing power, and business resilience. The relative valuation gap can then narrow.
In extreme circumstances, the previously ignored group can become fashionable. The market can overshoot in both directions. That is the deeper anti-bubble idea. A bubble creates excessive optimism toward one area. Its opposite can create excessive pessimism toward another. The opportunity exists in the gap between fundamental value and investor expectations.
The Strange Symmetry of Bubbles
Bubbles can create two investment mistakes made by investors simultaneously. The first is obvious: paying too much for fashionable assets. The second is less obvious: ignoring good businesses simply because they are unfashionable. This second mistake is what creates anti-bubbles.
Look at a stock market in which investors become obsessed with AI infrastructure. Money flows into hyperscalers, semiconductor manufacturers, GPU makers, memory makers, and data-centre suppliers. Analysts increase stock price estimates with each quarter of sharply improving earnings. Retail investors chase the recent winners. Institutional investors benchmark against them. Media attention rises, and successful stocks become increasingly visible.
At the same time, investors may neglect companies with completely different characteristics. The neglected companies do not become worse businesses merely because fewer people discuss them.
Their earnings continue to increase.
Their customers continue buying.
Their balance sheets remain strong relative to industry standards.
Their free cash flows continue increasing steadily.
Their share repurchases continue.
Their intrinsic values continue to rise.
But their prices may lag.
This creates an unusual situation. The best opportunity may emerge precisely because the stock is boring.
The Investor’s Most Important Asset: Optionality
There is another reason why de-risking matters. Cash or lower-risk assets are not merely defensive. They provide optionality.
An investor who is fully committed to the current stock market trends has little flexibility. An investor who has significantly reduced or exited positions that offer poor prospective returns based on conservative assumptions can redeploy capital when prices become more attractive.
This is especially important for a quality-value investor because attractive opportunities often appear when other investors are under pressure. During a calm market, everyone has capital. During a crisis, capital becomes scarce. That is when valuation mistakes can become large. A financially strong investor can exploit them.
This is one reason why avoiding unnecessary leverage matters so much. Leverage can force a person to sell when assets are cheapest. No or low leverage can allow an investor to become a buyer when the vast majority of other market participants have become sellers. The difference is profound.
Experiences a crash as a threat.
Experiences the same crash as an opportunity.
The difference may have been determined years or decades earlier by:
The balance-sheet discipline of the vast majority of the companies in the investment portfolio.
The fiscal discipline of the investor and that of his family.
Prudent portfolio construction and timely portfolio risk-adjustment.
“Has this exposure to this sector or region become sufficiently large that a major decline would impair my ability to behave rationally?”