Excess Returns – Weekly Wrap (March 15, 2026): "14% for Tech. 1% for Everyone Else"

Main Theme & Purpose

This episode of Excess Returns serves as a "Weekly Wrap," drawing together the best insights from recent guest interviews and distilled conversations between hosts Jack Forehand and Matt Zeigler. It focuses primarily on the stark divergence between high-growth "new era" technology sectors and the rest of the economy, the challenges of investing in a rapidly changing world, the role of humility and adaptability, the valuation landscape, the implications of AI, and the importance of thoughtful long-term portfolio construction.

Guests Featured via Clips:

• Vitaliy Katsenelson (Value Investor/Author)
• Jim Paulsen (Macro Strategist)
• Joseph Shaposhnik (Long-term Compounder/PM)

Key Discussion Points & Insights

1. The Necessity of Humility in Investing

Vitaliy Katsenelson on Uncertainty & Portfolio Management

• Rapid Change Means More Uncertainty:
  • “The range of possible outcomes at anything you look at got wider… So you need to have humility.” (05:24)
• Real-World Example:
  • Vitaliy expands his portfolio from 20 to 30 stocks due to increased unknowns. Diversification serves as a practical expression of humility.
  • “When I have less confidence, the way I express it… number of stocks I own went up.” (06:55)
• Focus on Enduring Needs:
  • Even as change accelerates, investors should think about "what's not going to change," e.g., commodities and defense. (07:55)
• Skillful Quote:
  • “You have no idea what the workplace is going to look [like] five or ten years from now.” (07:19)

Hosts’ Take:

• Humility means skepticism for bold market predictions and preparing for a wide range of futures (08:05-10:34).
• Matt: “The less confident I feel in the world, the more holdings I’m going to have in the portfolio. Diversification is the way I… hedge that confidence.” (08:13)

2. The Fall of Software, Rise of Learning Organizations & AI Disruption

Joseph Shaposhnik on Software, AI, and Corporate Adaptability

• Early Exit from Software:
  • Joseph discusses why he started reducing software exposure months before the rout, focusing on firms with learning cultures that embrace AI, like Constellation Software (11:04-15:16).
  • “There’s no substitute for organizations that are decentralized, have appropriate incentives… and are a learning culture.” (11:04)
• Shift in Capital Allocation:
  • Constellation shifted to invest in public rather than private software cos, reflecting market distress and new opportunities.
• The Existential Risk from AI:
  • New AI-driven businesses can run with minimal humans. Some management teams underestimated the threat, failing to pivot quickly (16:54-19:06).
  • “The managers, the leadership, the people at those companies not being able to have… a really good answer for what that was going to mean and what their business would have to do…” (17:14)

Hosts’ Analysis:

• The collapse of "bulletproof" software business models underscores how fast paradigms change in tech (16:28-19:06).
• The advantage now belongs to adaptive, learning-oriented management.

3. The Tech Economy vs. Everything Else: “The New Era”

Jim Paulsen’s 'Two Economies' Thesis – Explosive Tech Growth Amidst Stagnation

• Breakneck Growth for "New Era":
  • “In the last year, real new era spending is up 14 times faster than the rest of the economy. There’s 14% growth… and 1% in the remaining 89%.” (21:15-24:44)
  • The tail (tech) is “now wagging the whole GDP dog.” (24:28)
• Historical Context:
  • In the 1990s, new era outgrew 'old' by 2x; now it’s 14x.
• Key Quote:
  • “The small 11% new era piece is now wagging the whole GDP dog. More importantly… it’s covering up the fact that the 89% of the older economy… is basically flatlined.” (24:28)

Hosts’ Take:

• This explains why GDP prints remain healthy despite most of the economy stagnating: tech is masking underlying weakness (25:05-27:15).
• Capital markets’ deeper role in flooding money into these sectors versus the late ‘90s.

4. Survive First, Be the "Least Wrong": Investment Mindsets for Volatility

Vitaliy Katsenelson & Joseph Shaposhnik

• Survival as Priority:
  • “My goal as an investor is… first, I want to survive.” (28:09)
• Be ‘Least Wrong’, Not Always Right:
  • “Most people want to be right. I want to be the least wrong.” (29:02, echoed 29:58)
• Quantitative Mindset:
  • Broad diversification aligns with survival; it's not about predicting the top winner, but ensuring you remain in the game (31:36-32:41).

Hosts’ Commentary:

• Adaptation and humility permit exposure to right-tail outcomes while reducing chances of ruin (30:15-32:41).

5. Defense Supercycle & How Investors (Should) React to Macro Shocks

Joseph Shaposhnik on Global Defense Spending

• Reinforced Thesis by Global Conflict:
  • Ongoing wars have “strengthened” the case for a multi-decade boom in defense spending, especially among NATO/Western countries.
  • Estimate: “Over the next 10 years spending on defense could increase by a trillion dollars.” (34:30)
• Practical Portfolio Response:
  • Don’t attempt to time or predict geopolitical events, but ensure exposure to long-term trends with tailwinds.
  • “What we try to do is… know our businesses so well that when a piece of news comes across the wire, we already have a sense for who could be impacted.” (54:13)
• Position Sizing & Risk Assessment:
  • Prepare portfolios to withstand negative impacts if a conflict drags on; size positions accordingly.

Hosts’ Take:

• The real value is in positioning for secular trends, not chasing headlines or trying to time events (37:14-39:47, 54:13-57:51).

6. Valuations as Tailwinds or Headwinds

Vitaliy Katsenelson on Interpreting Market Multiples

• High Valuations = Headwind:
  • “When stocks are expensive, the price-earnings becomes a headwind... returns from stocks become... like third grade math: plus five plus minus five, you get zero.” (47:59-50:03)
• Multiples are Expectations:
  • When multiples are high, expectations are high; this can be dangerous if not met (52:51-53:12).
• Not a Timing Tool:
  • Expensive markets alone are not predictive but shape expected returns.

Hosts’ Commentary:

• Emphasis on understanding both numerator (E) and denominator (P) dynamics, not just the snapshot (50:35-53:59).

7. The Broader Economic Dynamics of AI and Tech

Jim Paulsen on AI: Job Loss, Deflation, and the Right Tail

• Dual-Edged Impact of AI:
  • AI may cut costs for consumers (e.g., legal work) and drive spending elsewhere.
  • “I might pay… $5000 for a will. Now, I can dial up an AI and do it for $100.” (40:31-43:48)
• Right Tail Scenarios:
  • Lower prices free up spending and can offset some negative impacts.
  • “There’s money to be spent elsewhere… going to create a whole lot more of new opportunities.” (43:19)
• Caution:
  • Need to account for the loss of high-income spenders (lawyers, etc.), but recognize Americans’ high propensity to spend ensures money cycles elsewhere (44:28-45:43).

8. The "Policy Juice" Dynamic

Jim Paulsen’s Policy Support Framework

• Unusual Bull Market with Little Juice:
  • “90% of the economy is already in recession. So if we bring the policy juice finally, it probably won’t be that out of character… that’s generally the description of a brand new bull market.” (60:05)
• Implications for Broader Market Leadership:
  • A new round of stimulus ("policy juice") could broaden the rally beyond the mega-cap tech winners (63:11-66:41).
• Fiscal Policy May Soon Return:
  • “If the economy’s bad enough, we’re not going to worry about [deficits]… we’re going to extinguish the fire right in front of us first and then worry about the rest later.” (60:05-63:11)

Hosts’ Take:

• Policy support has been absent, helping explain weak breadth. If stimulus comes, the rally could broaden from “the Mag 7” to the rest (66:06-66:41).
• Uncertainty remains about how Fed and governments respond, esp. with inflation risks (66:41-67:52).

Notable & Memorable Quotes (w/ Timestamps)

• Vitaliy Katsenelson:

  • “Today, you need a lot of humility… the world is changing so fast… I have less confidence in my decisions today for many stocks than I ever had before… I went from a 20-stock portfolio to 30.” (05:24-07:22)
  • “My goal as an investor is… first, I want to survive.” (28:09)
  • “Most people want to be right. I want to be the least wrong.” (29:02)

• Joseph Shaposhnik:

  • “There’s no substitute for organizations that are… a learning culture.” (11:04)
  • “As I think about this conflict, I think that our thesis that defense is in a supercycle certainly is not weakened by the conflict… but strengthened.” (34:30)
  • "We try to know our businesses so well that when a piece of news comes across the wire, we already have a sense for who could be impacted..." (54:13)

• Jim Paulsen:

  • “In the last year, real new era spending is up 14 times faster than the rest of the economy.” (21:15)
  • “The small 11% new era piece is now wagging the whole GDP dog… covering up the fact that the 89%… is basically flatlined.” (24:28)
  • “If we bring the policy juice finally, it probably won’t be that out of character… that’s generally the description of a brand new bull market.” (60:05)

Timestamps for Key Segments

• [05:24] – Humility and Diversification in Uncertain Markets (Vitaliy)
• [11:04] – Lessons from the Software Crash & Learning Organizations (Shaposhnik)
• [16:54] – Existential Threat of AI to Software; Management’s Adaptability
• [21:15] – Tech Outpaces Broader Economy by 14x (Paulsen)
• [28:09] – First Survive, Then Generate Returns (Vitaliy, Shaposhnik)
• [34:30] – Defense Spending Supercycle and Portfolio Construction (Shaposhnik)
• [47:59] – Valuations as Tailwind/Headwind Metaphor (Vitaliy)
• [54:13] – Preparing for Macro Shocks: Know Your Companies Cold (Shaposhnik)
• [60:05] – Policy Juice: What It Is and Why It Matters (Paulsen)

Thematic Takeaways

• Embrace Humility: The world is changing faster than ever; humility and flexibility are essential for investors.
• Learning Organizations Are Better Positioned: Firms that adapt quickly and foster learning outpace those that rest on legacy “moats.”
• Two Economies Operate in Parallel: Tech is driving the "new era" of growth and masking stagnation elsewhere.
• Be the Least Wrong: Success today is rooted in survival and minimizing mistakes, not chasing hot takes.
• Top-Down & Bottom-Up: Peace of mind comes from knowing your portfolio’s businesses in depth, enabling calm responses to headlines.
• Valuations Matter, But Timing is Tough: High multiples are a headwind, but only one piece of the puzzle.
• Policy Support Still Lurking: Fiscal and monetary “juice” has been missing—its arrival could reset market leadership.
• AI’s Disruption Has Two Sides: Deflationary benefits for consumers and hidden right-tail opportunities offset some job loss fears; effects will be uneven.

Hosts:
Jack Forehand & Matt Zeigler
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This summary covers all the substantive discussions and recurring themes from the episode, omitting segment breaks, ads, intros/outros, and sponsor messages. For further insights, refer directly to the identified timestamps.