😬 Guilt-Gotten Gains

The Moral Quandary of Defense Stocks — Plus, Prediction Markets Platform Kalshi is Now Worth $2 Billion

Author

Katie Perry
June 26, 2025

Welcome to Tuesday Thursday Saturday! I share a snapshot of trending stories across business, tech, and culture three times a week. Subscribe for more! - KP

The Big Story: When Stocks Go Up But Vibes Are Down

Investors want their portfolios to do well. But sometimes that means the world isn’t.

In the stock market, opportunism is just part of the game. Retail investors have been buying the dip since April 7 lows — yes, at a higher rate than institutional investors — and for that, they have been rewarded handsomely. Software standout Palantir, a retail favorite stock that has faced its share of criticism and controversy, is up 90% YTD and more than 500% in the past calendar year. $PLTR ( ▲ 0.11% )  

CNBC’s top story says it all

Last weekend, the Wall Street Journal explored how investor preferences are shifting. People aren’t just buying the S&P and logging out. And they’re also not just dumping their money into index funds and the Magnificent 7 and calling it a day. Instead, they are looking for alpha wherever they can get it. And that means following wars in real time, through the lens of the stock market. Is it dark? Yes. Is it happening? Absolutely.

On CNBC earlier this week, Robinhood CEO Vlad Tenev said AI, crypto, and defense stocks are some of the most popular trades among retail investors right now. On The Daily Rip Live, we frequently discuss my co-host Shay’s “new age of defense” portfolio, comprises companies developing AI-powered drones, surveillance technology, and cybersecurity platforms.

The defense budget in the United States alone is nearly $1 trillion, much of which is tied up in legacy deals with “old school” defense contractors like Lockheed Martin and Boeing. But if you’ve been reading the headlines, (relative) up-and-comers like Palantir, Anduril, and even OpenAI are getting their share of the pot. You can expect more of this to come as warfare evolves in the AI and autonomous era.

Beyond the United States, countries are “re-arming,” says Michael Parekh, an experienced M&A advisor to major tech companies and Internet analyst of more than 30 years. Just today, the NATO alliance officially announced it’s raising its defense spending target from 2% to 5% of GDP. That’s a big jump.

This new investor curiosity comes with baggage. I would be remiss not to point out the privileged position I sit in to have the means to invest, the available time to research investment strategies, and the security of residing in a country that is not at the epicenter of active and ongoing human tragedy. 

My geopolitical knowledge is limited and I hope for peace — and yet, every morning I wake up early to educate myself on the markets so we can host an informative show for everyone. Often, this means geeking out over emerging industries like autonomous vehicles and semiconductors. And sometimes this means researching the potential financial impact of horrific things.

The thing is, if you hold a defense stock and it’s doing well, there’s a good chance the world is not. Same with energy stocks, or even parts of AI. So we’re left with a moral paradox: we want our investments to go up. But we don’t always want the reasons why they’re going up.

Psychology as it pertains to investments is a fascinating topic that cannot be explored enough. The free market operates without emotion, making sense of our world in the context of supply and demand. It’s numbers. It’s math. But it’s shaped by human behavior.

A new paper published this week in the Journal of Banking & Finance by Carlos Cueva and Iñigo Iturbe-Ormaetxe, researchers at the University of Alicante in Spain, takes a close look at what happens in our brains once we hit the “buy” button.

The researchers ran two experiments to figure out how investors form expectations about their stocks. One used simulated stock markets in a lab. The other tracked how undergrads predicted the real-life returns of companies like Tesla, Uber, and Alibaba over six weeks.

Here’s what they found. Once someone buys a stock, especially if they picked it themselves and it's losing money, they start believing it’ll bounce back. And they aren’t just hoping. They are actually believing. Their forecast becomes more optimistic because they own it. Not because of anything the company did. Not because of market data. Just ownership. And especially ownership in red

Mean predictions by period in Study 1

Cueva and Iturbe-Ormaetxe refer to this as “motivated beliefs.” You want the stock to go up, so your brain rewires the narrative to protect your ego. You convince yourself that your choice was smart and the stock is due for a comeback. That you were right all along.

And this distortion kicks in most aggressively when the stock is underwater.

So if you’ve ever held onto a loser longer than you should’ve — just waiting for the bounce — congratulations. You’re human. (But you should definitely dump him.)

This is more than just a fun behavioral finance anecdote. There are real-world consequences to how belief bias plays out at scale.

For markets, it adds friction to price discovery. When lots of investors hold onto bad stocks because they believe they’re good, prices don’t adjust as quickly as they should. It helps explain the “disposition effect,” which is the well-documented tendency for people to sell winners too soon and hold losers too long.

It also contributes to volatility. Especially in sectors that attract retail interest. Think meme stocks, crypto, or newly hot categories like defense or clean tech. When paper losses hit, people dig in emotionally. Not rationally.

For retail investors, the takeaway is simple but hard: just because you bought it doesn’t mean it’s a winner. Believing in your own ideas is important. But checking those beliefs against reality is even more important. Especially when your money’s on the line.

Reading this paper, I couldn’t help but think: if Palantir’s stock were to go down, that might mean the world is doing better. But if you own the stock, you’ll probably still find yourself hoping — perhaps believing — it will bounce back. That’s the conflict. Psychology says you root for your investments. But what happens when rooting for your portfolio means rooting for outcomes you may not actually want?

The markets are full of moral tension right now. You might believe in clean energy but find yourself buying defense ETFs. You might hate Big Tech but still hold Meta because of their ridiculous cash flow. There’s no easy answer to how to feel good about what you own.

I’ve come to think there is no “right” answer since everyone is trying to strike a different balance of financial upside with moral complacency. But I do think being aware of what you’re brain is doing as you make such decisions is a solid first step.

Read the paper if you want the academic breakdown. It’s called Motivated Beliefs About Stock Returns. And the next time you check your portfolio and start telling yourself a comeback story, pause. Ask if that story is grounded in reality, or just your ego trying to avoid pain.

Daily Rip Live: Paying Mortgages with Crypto, Kalshi Raises $185 Million, and $MU’s Earnings Beat

Watch us every weekday morning (M-Th) at 9 AM ET on X, YouTube, or in the Stocktwits app!

Every weekday, my co-host Shay Boloor and I cover the biggest market news and events LIVE on Stocktwits’ morning show, The Daily Rip Live. On Monday, we welcomed back our pal Michael Parekh to the show. Michael has decades of experience helping global companies navigate corporate dev and M&A strategy, and he’s one of the top analytical brains covering AI and the tech sector.

Here’s what we covered:

⇢ 2:18 My co-host Shay will be on The Compound & Friends next week in what will be the fintwit crossover event of the century

⇢ 5:45 Micron Technology exceeded expectations in its third quarter by reporting record revenue and profits, driven by strong demand for its memory chips used in AI data centers. They’re making a $100 million investment in Syracuse! $MU ( ▼ 1.21% )  

⇢ 12:12 Fannie Mae & Freddie Mac to consider crypto as an asset for buying mortgages? It could happen, according to the director of the Federal Housing Finance Agency.

⇢ 16:12 Sharks are circling Fed Chair Powell, who is a huge Grateful Dead fan?

⇢ 21:22 I attended the NBA Draft! At a panel discussion hosted by the NBA and American Express Ventures, I asked former Chicago Bull Ron Harper what he makes of the evolution of NIL. His son, Dylan, went number 2 overall!

⇢ 24:24 Athlete endorsements aren’t just for consumer brands. See: Saquon Barkley (& Jeb Bush - ha!) for B2B fintech Ramp.

⇢ 25:43 Kalshi, a U.S.-approved prediction market platform, raised $185 million at a $2 billion valuation — double that of rival Polymarket, which is still banned in the U.S. Kalshi is the engine behind Robinhood’s predictive markets features. $HOOD ( ▲ 0.98% )  

⇢ 38:53 The S&P is nearing all-time highs and retail investors are not phased (see above).

⇢ 48:20 Nike reports earnings after the market closes today. How will they reclaim the cultural crown? Everyone is wearing Axel Arigato’s here in NYC.

Back in action on Monday at 9 AM ET. Join us!

Now Here’s a Chart

Inventory for single-family homes is at its highest level since 2007.

Reading List

I was told to not touch the Larry O’Brien Trophy.

Tuesday Thursday Saturday is written by Katie Perry, owner of Ursa Major Media, which provides fractional marketing services and strategy in software, tech, consumer products, professional services, and other industries. She is also the co-host of Stocktwits’ Daily Rip Live show.

Disclaimer: The contents here reflect recaps and summaries of pre-reported or published data, news, and trends. I have cited sources and context for the information provided to the best of my ability. The purpose of the newsletter is to inform and educate on larger trends shaping business and culture — this is NOT investment advice. As an investor, you should always do your own research before making any decisions about your money or your portfolio.