Two Years Too Early

When I moved these weekly notes to Substack two years ago, my first email was about the difficulty of timing trend reversals. I started by highlighting Morningstar’s chief US market strategist’s prediction that 2024 would be the year for small-cap stocks, and finished the note by saying:

The general idea that value and small-cap companies will outperform large growth companies will eventually be true. However, timing is everything, and the pain of being early is often indistinguishable from the pain of being wrong.

That turned out to be correct.

In 2023, small caps underperformed large caps by 8.8%. In 2024, they underperformed by 13.5%. In 2025, they underperformed by another 8%.

And just as many investors were giving up on small caps entirely, the asset class turned around and outperformed large caps by 12.3% in the first 6 months of this year.

I don’t bring this up because I have strong feelings about the merits of large caps or small caps. My only point is to remind you that things that cannot go on forever will eventually stop, but the markets can stay irrational longer than you can stay solvent, and betting on exactly when things will change is generally a terrible way to try to make money.

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Personal Note:

Thanks to Starlink, my temporary office has moved to a cottage in Ontario, Canada. I think my kids have liked the change. In-person meetings in Houston will restart on July 15th.