Paying For Perfection, But Getting Mediocrity

Paying For Perfection, But Getting Mediocrity

As I wrote last week, it’s dangerous to invest in an expensive market near the end of a bull cycle. That’s why I recently sold my entire long exposure to the S&P 500 index. I transferred the proceeds into the BlackRock bitcoin exchange-traded fund (IBIT).

Let me be clear, the S&P 500 will go higher and will probably make a new high before finally topping.

So why did I sell it? For two reasons.

The first is I believe bitcoin will rise faster and further than the S&P 500. So far, that has been true. Since I made the swap into BTC, it’s up almost 12% while the S&P is up 4%.

The second reason is I believe we’re in the final innings of what has been a 16-year secular (long-term) bull market. And when secular bull markets transition into secular bear markets, returns are flat to negative for a decade or more.

At 54 years old, I am not willing to take that risk. If you’re in your 30s, the math is different. But anyone over 45 needs to take a long, hard look at what their life will look like if markets go sideways for 10-plus years.

To find my strategy for sidestepping the “Lost Decade of Wealth” I see on the horizon, I urge you to read my three-part plan here.

I’ll get to why bitcoin is the best “outside asset” you can own moving forward. But first, let me explain why you should start preparing for a lost decade of returns now.

Unless trade tariffs are completely abandoned (a highly unlikely scenario), we’ll see the cost of doing business rise globally.

Profit margins will shrink. And corporations will be forced to absorb rising costs because the U.S. consumer is already stretched thin.

If there’s an earnings slowdown – and everything I see points in that direction – the market will get more expensive over time, even if it recovers to its old price levels.

That’s exactly what happened in 2000 after the dot-com bubble burst.

The forward price-to-earnings (P/E) ratio of the S&P 500 hit 24.4. That meant investors were paying over 24x the next year’s earnings to own the market.

Now, it’s fine paying that much for the market when you’re in the early or mid-stages of a bull market. But it’s downright dangerous at the tail end.

Passive investors who bought near the end of the dot-com bubble strolled aimlessly into a “lost decade” with total returns coming in around -4.3%.

Here’s why I’m sounding the alarm now…

In January 2025, the S&P 500 started the year with a forward P/E ratio of 22. That means the market was priced for perfection.

In other words, to justify buying the market at those prices now, we’d have to anticipate increasing sales… earnings… productivity… and consumer confidence next year.

With all the tariffs and trade war talk, do you see the economy improving over the next year? If you’re like most Americans, your answer is a resounding “no.”

Consumer confidence has plunged 32% since January. That’s the sharpest three-month decline since the U.S. was rocked by a recession in 1990.

In the past, smart investors would wait out a lost decade of returns in the safety of U.S. bonds.

From 2000-2013, 30-year government bonds returned an average of 10.47%. By comparison, the S&P 500 returned virtually nothing.

But now, we’re in an entirely new environment.