Markets are often driven less by logic and more by emotion, and that pattern hasn’t changed says Nick Clay, Manager of the TM Redwheel Global Equity Income fund, who joined the Fund Calibre team this week in their latest podcast episode.
In this session, explore how cycles of greed and fear continue to shape market behaviour, and why volatility is returning after years of unusually stable conditions.
Nick and the Fund Calibre team discuss inflation, AI-driven disruption, shifting definitions of quality and why valuation discipline matters more in today’s environment.
The interview also challenges the idea of “quality at any price” and highlights the importance of income.
Why you should listen to the interview: This interview cuts through market noise to explain why recent trends may not be as permanent as they seem.
It offers a grounded perspective on volatility, valuation, and AI-driven disruption, helping investors rethink assumptions formed in the post-2008 era and understand what truly drives long-term returns.
This interview was recorded on 12 May 2026. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
Markets keep making the same mistakes
“Markets learn in cycles, but they don’t really learn at all, they just keep making the same mistakes again and again. And that ends up being entirely true.
“I think that’s because we’re human beings and emotions govern what we do. That’s why we need disciplines in what we’re doing in our strategy, to stop us being who we are.
“Those emotions lead to excesses in interpretation of what’s going on, whether from greed or from fear. Right now, it’s more leaning towards greed.
“What that creates is these great waves in markets. And I find that interesting because it happens again and again, yet the market doesn’t seem able to learn from it or take a more balanced view, or focus on things that actually matter like valuation.
“Despite computers, algorithms, and everything else that’s been introduced into investing, it still doesn’t change the fact that human emotion remains the dominant driver of markets.
“Recognising that, and building a process that tries to counter it, is absolutely key to trying to do something successful over the long term.”
What does “normal” look like in 2026?
“When we talk about a return to normality, we mean stepping back and looking at long-term market history. If you go back to the 1950s on the S&P, you can see periods of much higher volatility in markets.
“That doesn’t mean markets go down; it just means they move around more. That, we would argue, is actually more normal for equity investing.
“What we’ve had since the financial crisis is a period of extremely low volatility, driven by excess liquidity and central banks effectively stepping in to support markets.
“That has implications. It changes how much risk investors think they need to take, it changes expectations, and it creates this idea that cycles don’t really exist anymore because they’ll always be smoothed out.
“But when things go up in a straight line with no volatility, investors focus purely on upside capture. The thinking becomes: how do I just beat the market on the way up?
“In more volatile environments, downside risk becomes far more important because consistency of returns matters more for compounding.
“We’re already starting to see a return to that environment. We saw it in 2025 with Liberation Day, and again with what’s going on in the Middle East. That return to volatility means people need to think slightly differently.”
Cisco Systems and the discipline of selling
“When we think about valuation, we look at the range of outcomes for a company’s cash flows. That creates a ‘fan’ of potential outcomes.
“We then discount that back to today using an 8% rate, which reflects long-term equity returns. What we’re looking for is whether that fan of outcomes is skewed in our favour, or whether it’s asymmetrically skewed against us.
“When it becomes skewed against us, that’s when we sell. And that is exactly what happened with Cisco Systems.
“We got to a point where that fan of outcomes was effectively telling us that in almost all reasonable scenarios, you weren’t going to make any money from the stock anymore. So we sold it and recycled it elsewhere.
“Since August 2024, Cisco’s share price has gone up about 120%, but earnings forecasts for 2026 and 2027 have only increased around 9%. So you’ve had a very sharp rerating in the stock. It’s now around 34 times earnings, with a very low free cash flow yield.
“The market is effectively implying that Cisco can structurally change its business model, become higher growth, higher margin, and sustain that into the future. But there’s very little evidence of that step change.
“It’s not that Cisco is a bad company, it’s just that the valuation now demands a transformation that may not happen.”
AI disruption and the end of easy quality
“AI is going to bring disruption to a lot of businesses that were previously considered very high quality because the moats around them are now being challenged.
“What used to be strong competitive advantages are no longer as durable as they once were.
“For example, having very large databases was historically seen as a moat. It was incredibly difficult and expensive to replicate them.
“That is not the case anymore. So some businesses we used to think of as almost ‘Teflon’ are no longer in that position.
“What’s interesting is how the market reacts to this. We’ve gone from expensive quality companies to quality companies that are now starting to look like value.
“In some cases, they’ve underperformed so much that they are actually entering a value universe. That creates opportunity, but it also requires much more selectivity.
“The key question becomes: can these businesses suffer disruption and still survive? Can they adopt AI in a way that benefits clients without competitors coming in and taking their market share or driving down pricing?
“If they can, they may still be attractive. If they can’t, the valuation risk becomes much higher.
“So we’re moving beyond a world where you can just buy quality at any price. Valuation matters again, and disruption means not all quality is equal anymore.”
Conclusion: Nick Clay closes on a reminder that markets are cyclical, not linear, and investor behaviour often repeats despite new tools and narratives.
As uncertainty builds around inflation, AI, and global leadership, discipline and perspective become even more important for navigating the next phase of market cycles.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: background, pawel-czerwinski-HKHwdinroSo-unsplash
