Resources/Weekly Insights

Volume 15, Edition 4 | February 2 - February 8, 2026

The Other (More Important) Market Risk

Doug Walters, CFA

Our latest Insights explains why the most important risk in investing isn’t volatility—it’s the potential for permanent loss of capital. We contrast the durability of Quality and Value–driven investments with the uncertain recoverability of assets like cryptocurrencies.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Volatility gets most of the attention in investing, but it’s not the risk that matters most, in my opinion. The one that shapes long‑term outcomes and distinguishes prudent investing from speculation is permanent loss of capital. The phrase sounds straightforward, yet it’s not well understood.

What we are talking about is the difference between an asset that can recover and one that may never recover. It’s the dividing line between disciplined investing and largely avoidable damage. So, let’s dig in.

Consider Quality and Value

Two of the most durable investment factors, Quality and Value, work especially well when considered together. Value helps ensure investors are buying companies at prices that reflect, or even understate, their intrinsic worth. Quality helps ensure that those companies possess the financial strength, operational resilience, and balance‑sheet discipline needed to protect that intrinsic value over time.

Even when markets temporarily misprice companies that exhibit both Quality and Value characteristics, the underlying fundamentals continue to operate. Cash flows accumulate. Balance sheets remain sound. Competitive advantages persist. Management teams continue to reinvest, innovate, and adapt. Over time, these fundamentals tend to draw market prices back toward fair value.

In short, the risk of permanent loss of capital is diminished.

The Cryptocurrency Counterpoint

It’s too easy to pick on cryptocurrencies this week. But we will anyway. Bitcoin, the bellwether digital currency, had fallen about 50% from its 2025 peak as of last week. Unlike stocks that possess Quality and Value, cryptos typically do not have earnings, cash flows, or a balance sheet that can support valuation. Their worth depends almost entirely on future adoption and the collective belief that others will continue to ascribe value to them.

In other words, the risk of permanent loss of capital is high.

The underlying blockchain technology may offer utility in areas such as decentralized settlement, digital ownership, or global transfers, but Bitcoin is not a good currency. For something to function as a currency, it should be a stable store of value and an effective medium of exchange. The consistent high volatility is evidence enough for us that Bitcoin fails that test.

If we were to attempt to calculate an underlying value for Bitcoin, we’d have to delve into its utility as a medium of exchange for illicit transactions such as money laundering, ransomware payments, black market commerce, scams, fraud, terrorism financing, etc. It’s very good at that, but if that is where its value is derived, we want no part of it.

The Takeaway

The lesson is not that stocks are “good” and crypto is “bad.” It is that recoverability matters. When we build our evidence-based diversified portfolios, we are less concerned about volatility, which is often rewarded in the market, and more concerned about avoiding the potential for permanent loss of capital. In a market crash, it is the difference between a portfolio built to rebound and one that will never fully recover.

88%

Rebound of biotech (XBI) from its 52 week low

We talk above about avoiding permanent loss of capital. Biotech is an interesting case. We like exposure to an equal weight basket of biotech stocks like can be found in the SPDR S&P Biotech ETF (XBI). We know many of those biotech stocks in the ETF will suffer permanent loss of capital when their R&D falls short. But the basket as a whole has historically provided attractive positive returns. Safety in numbers.

Headline of the Week

Labor Market Signals Flash Warning Amid Shutdown‑Delayed Data

A new week but similar issues persist. February’s start offered a reminder that economic narratives often hinge as much on what we can’t see as what we can. Another government shutdown (even if it was “partial”) delayed the January jobs report, leaving policymakers and markets without one of their most relied‑upon indicators. Since “nature hates a vacuum”, alternative measures are filling the void and are pointing to a labor market that may be losing a bit of its footing.

Layoff announcements climbed sharply to start the year, and high‑frequency data such as jobless claims and job‑opening levels have softened in recent weeks. None of these developments, taken alone, signal a break in the labor market’s broader resilience. Yet together they confirm a continuing shift from “slow hiring, no firing” to “no hiring, some firing.”

For the Federal Reserve, the timing is awkward. The labor market has been a stabilizing force even as inflation moves unevenly toward target. Now, with key data missing and secondary indicators showing mixed readings, the Fed’s wait‑and‑see stance becomes even more dependent on imperfect information. At the same time, markets continue to digest the implications of new Fed leadership.

For markets, the picture remains the same: crosscurrents, incomplete data, and a story still in the making.

The Week Ahead

The delayed employment and now inflation reports are the marquee economic goings next week, and even earnings reports lack the firepower we had the previous few weeks.

Better late than never

A partial government shutdown forced a halt to statistical work, so given the extension, the data will be released this week instead.

The non-farm payroll report will come out on Wednesday instead of this past Friday, though other private reports were out last week, and expectations for the report have not changed.
The Consumer Price Index (CPI) gets an extra two days.
Very little is expected to change in January from the December report.
After the previous shutdown from October to November, there is a sense of inconsistency in the data which has allowed inflation watchers to place slightly less emphasis on this report than in the past.

Lacking the sizzle

Earnings reports are still coming at a fast pace, but this week lacks the AI hype as names like Coca-Cola and McDonald’s are on the calendar.

The one “old tech” name that may be getting its day in the sun this week is Cisco Systems.
With all the investment in hardware to power AI that the Mag 7 are projecting some of that must be flowing to the maker of networking products.
Cisco stock is at an all-time high, finally above the pre-tech bubble levels going into the report.

International Flavor

A lower house election over the weekend in Japan and the United Kingdom’s 4th quarter Gross Domestic Product are what investors are watching, but sports fans will focus on the winter Olympics in Italy.

116 Gold metals will be distributed across 16 different sports in the next 2 weeks.
USA, Norway, and Germany are historically the heavy hitters when it comes to gold medal count.

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