Puppies, stocks — ‘zoomies’ abound

This spring, I adopted a three-month-old rescued German Shepherd mix. To say she is easily excitable is an understatement.

It is not really her fault. A puppy’s frontal cortex, the part of the brain that helps with decision-making and impulse control, is still developing. When an older dog, or a human, gets tired, we generally understand we should rest. Puppies have not quite figured that out. They often interpret tiredness as a signal something is wrong, which makes them more alert, more reactive and harder to settle.

That creates a feedback loop. The puppy gets tired, which makes her frantic, which makes her more tired, which makes her even more frantic. Eventually, this becomes what people call the “zoomies”: frantic sprinting, biting, jumping and general chaos.

From the outside, it looks like the puppy has too much energy. In reality, the opposite is true. The zoomies are not a sign of excess energy. They are a sign the puppy is overtired and does not know it yet.

Puppies are not unique in this respect.

Humans also misinterpret our own internal signals. We mistake stress for urgency, busyness for productivity and excitement for confidence.

We also tend to assume motion is evidence of strength. A crowded restaurant must be good. A long line outside a store must mean something valuable is inside. If everyone around us seems enthusiastic, that enthusiasm starts to feel like proof. As social creatures, we are wired to look to other people for cues, especially when the future is uncertain.

That instinct is useful most of the time, but it can also create feedback loops. The more people become convinced of something, the more convincing it appears. Sometimes, a genuine trend is developing. Other times, we are simply watching a collective version of the zoomies.

Financial markets can behave the same way.

Over the past few years, enthusiasm around artificial intelligence has created its own feedback loop. Strong returns in AI-related stocks have reinforced the belief the companies behind the technology will continue to earn more and more money. As more investors buy into that story, prices rise further. Rising prices then become part of the evidence the story must be right.

That is how markets get the zoomies.

The concern is not that AI is unimportant, it almost certainly is. The concern is the market may be treating excitement, spending and price momentum as if they are the same thing as durable profits.

The concern is not that AI lacks potential. It is enthusiasm and rising prices can sometimes get ahead of the profits that eventually need to justify them.

In other words, the market may be looking at a tired puppy sprinting around the room and concluding it has endless energy.

The challenge for investors is knowing the difference between genuine strength and frantic motion. We cannot know exactly when a speculative trend will slow down. There is no biological law that forces an expensive stock to take a nap. Market enthusiasm can last longer than expected, and people who are ultimately right can still get the timing wrong.

So, the conclusion is not that a crash is imminent. It is more measured than that.

When optimism is abundant, valuations are elevated, and risk feels easy to ignore, expected future returns tend to be lower. That does not tell us what will happen next month or next year, but it does affect how we should think about risk today.

The goal of investing is not to predict the future — it is to recognize the range of possible outcomes and invest accordingly. That means avoiding the temptation to chase fashionable stories, while also avoiding the mistake of assuming a correction must happen simply because valuations appear stretched.

For many investors, that may mean maintaining a balanced mix of assets rather than relying heavily on investments whose success depends on continued market enthusiasm.

Diversification rarely feels exciting, but excitement and good investing are not always the same thing.

In short, we would rather put the puppy to bed early than risk getting bitten.

Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized

professional advice. Please consult legal, tax, insurance and

investment experts for advice on your unique situation

Andrew Froese, CFA, is a wealth adviser and portfolio manager with National Bank Financial Wealth Management