To be sure, there is a great deal of angst in the markets these days. Truly remarkable earnings reports have been met with heavy selling. Talk of bubbles abound on a daily basis. And that favorable seasonality the bulls were counting on has been a complete no-show so far this year.

For those of you keeping score at home, it is worth noting that the major stock market indices are indeed experiencing a bit of a pullback here. If my calculator is functioning properly, the S&P 500 is off -5.11% from its high of 6890.89 last seen on October 28, 2025. The NASDAQ 100, which is where so many of the big tech companies reside, has given back -7.91%. And the Russell 2000 small cap index has fared even worse, sporting a decline of -8.47% from its most recent high.

As such, the degree of discomfort one may feel as we enter the shortened Thanksgiving Holiday week of trading is directly attributable to what your portfolio holds. I'll opine that a pullback of 5% for the blue-chip S&P 500 should best be placed in the run-of-the-mill category. Anyone who has been at the game for a while surely understands that pullbacks of this magnitude happen all the time. Oftentimes for little or no reason.

All About What You Own

However, as I pointed out in early September, this continues to be a "What You Own Market."

If you are invested in a typical diversified portfolio such as is found in the iShares Core Moderate Allocation ETF (symbol: AOM) you may be wondering what all the fuss is about here. I calculate that this moderate allocation ETF has pulled back a not-so-horrifying -2.3% from its most recent high-water mark. Nothing to see here, right?

It's Really a Spec-Wreck

But... For anyone who happens to be a little more adventurous in their approach to portfolio design, this market is a horse of a completely different color.

Cutting to the chase, traders have taken anything/everything that can be considered "speculative" in nature out behind the woodshed for a serious a$$ whooping. You know, the stuff that had doubled and tripled this year such as quantum, modern nuclear, and all shades of crypto.

Unlike the big, blue-chip indices, the carnage here is real. According to my eSignal system, the ProShares Bitcoin ETF (BITO) has declined -26% in the last 30 days and is off -60.6% from its March 13th high. Ouch.

Those new SMR (small modular reactors) producers, which are expected to help supply the exponentially increasing demand for electricity going forward such as OKLO have been spanked to the tune of -45% over the last 30 days.

And then there's the speculative names in quantum computing. Make no mistake about it; quantum is likely the future of computing. But apparently the powers that be think the recent pricing had become more than a little overdone. In response, traders have hit D-Wave (QBTS) to the tune of -40.4% in the last month, IONQ -32%, and Rigetti (RGTI) -47.4%. Not exactly a run-of-the-mill pullback!

Timing is Everything

So... Any investor that came late to the spec-tech trade (as in, any point past early-September) has experienced some pain. On the other hand, investors who decided to put a little of their portfolio into these speculative areas a year or more ago are still sitting pretty for the year - relative to the major indices, of course.

For example, while the action in D-Wave Quantum (QBTS) has been fairly dramatic of late, the stock is still up +144% on the year. And OKLO still sports a gain of +314% in 2025.

Heck, even Palantir (PLTR), which, in my humble opinion, is by NO means a speculative play, has been caught up in traders' collective ire lately. This despite putting up one of the most impressive earnings reports ever seen in the software industry. Which, at least in part, helps explain why the stock has more than doubled investors' money in 2025.

What's Your Game Plan?

My point on this fine Monday morning is an oldie, but a goodie. You see, timing and position-sizing matter. If you were an early adopter of these speculative, future-oriented investing themes, congratulations, even a small allocation to your portfolio means you've been beating the indices by a mile.

Sure, the last month hasn't been any fun at all, and your stomach may be starting to get a bit queasy here. But you have to understand that in Ms. Market's game anything that can double in a short period of time can also pull back 50% (or more!) whenever things get too frothy.

It is for this reason that a little something called "position sizing" is mission critical for serious, longer-term investors. Mind you, I'm NOT talking about the "fast money" traders out there. No, they play a completely different game. However, I'll still argue that "position sizing" remains an important tenet to success, no matter what your timeframe happens to be.

For me, the key is that speculative positions should always be the smallest part of your portfolio. For example, if your highest conviction names are 5% or 10% positions in your portfolio, you probably want the more speculative stuff to be a fraction of that (say 2% - 3%). And, of course, the total exposure to speculative issues should remain modest relative to your core and/or high conviction positions.

Then if you are lucky enough to find some of those positions "movin' on up" in terms of their percentage of the overall portfolio (which can happen when a name doubles in a short period of time), it is usually a good idea to do some "right-sizing" of positions. An easy way to do this is to simply rebalance the portfolio back to the original targets.

In other words, it important to remember that trees don't grow to the sky. And since Wall Street tends to overdo EVERYTHING (in both directions), you have to remain on high alert when things get frothy.

Finally, it is important to have a plan for any of your speculative holdings. First, you must understand your emotional makeup. Can you handle the extreme volatility (in both directions) that comes with the territory?

It is also important to remember that the high point of the value your portfolio shouldn't be considered "yours" - unless you sell and lock in gains, of course. Understand that things can and often do get "ridiculous" in both directions. So, it isn't a good idea to equate the high point of your portfolio during a frothy move higher with investing brilliance - nor to feel "dumb" at the low points during the inevitable corrections or resets.

From a big-picture, portfolio design perspective, our approach is to try to invest as early as possible in themes that we believe will dominate the future. And, unless the "story" or the fundamental reason for making the purchase changes, we plan to hold positions - regardless of the price action in the near-term.

This is what "investing" (as opposed to "trading") is all about. However, we also believe it is vital to review position sizes and to make adjustments on an opportunistic basis. For example, when things get a little nutty (in either direction), we like to rebalance back to our targets. Such an approach helps us to sleep at night when the bears and their computers go on the attack.

Thought for the Day:

You can't get much done in life if you only work on the days when you feel good. -Jerry West

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research, a Registered Investment Advisor

Disclosures

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: QBTS, OKLO, PLTR - Note that positions may change at any time.

NOT INDIVIDUAL INVESTMENT ADVICE. IMPORTANT FURTHER DISCLOSURES