An Ignoble Experiment: 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.

Long-term bonds have been torched by inflation. And foreign investors are fleeing U.S. dollar-denominated assets due to uncertainty over the trade war. That's why we've seen bond prices drop as much as 9.6% this year.

At the same time, we've seen gold prices soar higher. Since January, they're up 26%.

Gold has proven itself again as a resilient store-of-value asset. But as we've covered in these pages, it has its shortcomings when applied to the world of modern finance.

I believe investors in this digital age are finally awakening to the idea of "digital" gold. And that's bitcoin.

Since the close of April 2 (reciprocal tariff day), bitcoin is up around 12%. By comparison, over the same period, the S&P 500 has been down as much as 15%.

It's come back since then… But it is still down 3% from April 2.

Bonds are down and stocks are down… Not to mention the U.S. dollar, which has been down as much as 6%.

What is the market telling us?

The market is telling us it sees gold and bitcoin as neutral, safe haven assets. For gold, that's nothing new. But for bitcoin, this is a historic moment.

Usually, when markets get slammed, bitcoin goes down even more than the main markets. However, that narrative is changing. Bitcoin is starting to decouple from growth assets like tech stocks.

Investors are finally realizing gold and bitcoin function similarly and offer many of the same benefits.

Bitcoin is even scarcer and much more useful than gold in modern society. It's more easily stored, transported, and exchanged than gold. That makes gold the horse… and bitcoin the automobile.

Right now, the value of the global gold market is about $22 trillion. The market cap of bitcoin is under $2 trillion. So there's much more upside in bitcoin than gold.

If bitcoin just reaches gold's current market value, that's a 1,058% rise from today's prices.

I want to be clear: I'm not saying sell everything and go all-in on crypto.

But a 10-20% allocation to bitcoin will offer you similar protection as gold while outperforming the yellow metal and the S&P 500.

And if I'm completely wrong about the direction of the stock market, we don't give up any upside.

Heads We Win, Tails We Don't Lose

I fully expect the government to do everything it can to rescue the stock market if prices continue to fall.

But even if the Federal Reserve floods the world with liquidity and the S&P 500 storms to new highs overnight – bitcoin will still outperform the S&P 500.

That's the beauty of my strategy.

Anything that boosts stocks – such as loose monetary policy or soaring consumer sentiment – gets magnified in the bitcoin market.

Take a look at the table below to see the five-year rolling returns of bitcoin vs. the S&P 500.

You can see that bitcoin typically returns 5-10x the return of just holding the S&P 500.

That means if I'm completely wrong about my call on a lost decade of S&P 500 returns, we'll get almost all the upside of holding the S&P 500 by just owning a 10-20% allocation in bitcoin.

Friends, the question of where to allocate your money over the coming months is simple: Do you see a perfect economy in the near future? Because that's what the S&P 500 needs to deliver fantastic returns.

Sure, if you're a trader, have at it. These are wonderful markets for traders.

But if you are looking to retire over the next 5-10 years, then you need to be very cautious about how much exposure you have to the S&P 500.

That's why I believe a portfolio of 10-20% bitcoin and 80-90% blue-chip dividend stocks will absolutely STOMP the returns of the S&P 500 over the next 10 years.

What if I'm wrong and the S&P 500 goes vertical?

Well, remember what I said earlier? Anything good for the S&P 500 is even better for bitcoin.

That's why I am not advocating dumping all stocks and going to cash. What I am saying is you need to change your investment allocation.

Owning bitcoin alongside a portfolio of dividend-paying blue-chip stocks will, in my opinion, CRUSH the returns of just holding the S&P 500.

Heads we win, tails we don't lose.

Let the Game Come to You!