Market Mayhem: Or, How Not to Become a Bagholder

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Listen up, folks! Investing in the stock market? It’s the best racket going, truly! Especially if you’ve got a time machine and a good accountant. The last ten years? Forget about it! The S&P 500 index (^GSPC +0.50%)? It’s gone bananas! A 337% total return (as of January 22nd, don’t hold me to the nanosecond) translating to a cool 15.9% annualized. I mean, seriously, what are people complaining about? It’s like finding a winning lottery ticket… and then immediately buying more.

But hold on to your hats, because here comes the punchline. After all this… success… the market is starting to look a little… suspicious. Like a magician who keeps pulling the same rabbit out of the hat. And history, bless its dusty heart, is trying to warn us. So, let’s talk about 2026 and beyond, shall we? Don’t say I didn’t warn you when your yacht suddenly shrinks.

Understanding the Current… Situation

Now, there’s this thing called the CAPE ratio. Sounds like a fancy cape for a superhero, doesn’t it? Nope. It’s a measure of the S&P 500’s valuation compared to its earnings. It’s complicated, I know. Think of it as trying to figure out if that used car salesman is actually being honest. Right now? It’s at 40.4. That’s… high. We only saw it higher during the dot-com bubble. Remember that? Everyone thought they were going to be billionaires overnight. Mostly, they just ended up with a lot of very expensive paperweights.

The folks at Invesco – smart cookies, those guys – have done the research. Turns out, the higher the CAPE ratio, the lower your returns are likely to be over the next decade. Around this level? Expect a measly 1% to 5% a year. That’s right, folks, the days of easy money are… well, they were good while they lasted, weren’t they? It’s enough to make a grown man weep into his portfolio. Or, you know, just sell everything and buy gold. (Don’t do that.)

But Wait, There’s More! (Tailwinds, That Is)

The truly great investors? They’re not just looking at numbers. They’re looking at the whole shebang. They realize the stock market is… different now. It’s like comparing a horse-drawn carriage to a rocket ship. A very, very expensive rocket ship.

We’ve got these technology companies, see? They’re getting bigger and bigger. It’s like they’re powered by some sort of unstoppable force. They have all the qualities you want in a business: innovation, growth, and a complete disregard for the laws of physics. And people are enthusiastic about them. Who wouldn’t be? We’ve never seen anything like it before. It’s frankly terrifying… and potentially profitable.

Since the Great Recession, the U.S. and other major economies have been operating with… let’s call it “relaxed” monetary and fiscal policy. Interest rates are practically subterranean. Debt and money supply are expanding faster than my waistline. This adds liquidity to the system, which supports higher asset prices. It’s like giving the market a constant sugar rush.

And then, in late 2023, something historic happened. Money in passive investment vehicles – index funds and ETFs – finally exceeded the money in active funds. More capital flowing in means more buyers, which supports higher prices. It’s a self-fulfilling prophecy, really. Like a magician who’s really, really good at sleight of hand.

So, these tailwinds can ease some of your worries about the market’s current valuation. The savvy move is still to invest early and often, even if returns don’t mimic the past decade. Just don’t expect to be buying islands anytime soon. And if you see me on one, well, I clearly didn’t listen to my own advice.

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2026-01-27 00:42