New Highs Will Continue Until Morale Crashes
My take on "beating" this market, and improving your chances for a predictable retirement
Hopefully, the headline for this post is taken in the good spirit which which it is intended. Since it is a play on mainstream expression, used by edgy comedians and presumedly no one else.
Before I explain exactly what I think is going on here in mid-May 2026, with the stock market setting records seemingly every day, here’s a quick update on one of the model portfolios at ROAR.PiTrade.com. Most of those are free if you simply sign up for the site with an email. It is non-personalized investment research, provided by us, to be used if/as an investor chooses. This post is one of several I’ll be delivering here, primarily to help our audience better understand 2 things:
Investing doesn’t have to be complicated (the portfolio below owns 3 ETFs)
Until you understand how return and risk work TOGETHER, you’re just gambling
While each of these portfolios has a specific “benchmark” that we compare it to based on how much risk it takes (conservative, moderate, etc.), I’m showing you all of these against the S&P 500 (SPY) ETF, since that’s an easier frame of reference for many investors.
The point is this
If it is a piece of that “action” you seek as an investor, there are ways to go about it that ALSO manage risk, all along the way. Here is one of my favorite ways.
Our paid subscribers see them all, updated regularly.
This is a model portfolio we call Hedged Equity. If you go to the site, you can see the current holdings. This is one of 7 models currently on the site. A few more are on the way soon.
Hedged Equity is pretty straightforward: SPY, BIL, VIXY. That’s stocks, cash and a volatility ETF whose main role is to mute the impact of “surprise attacks” by the stock market. It is up about 7% so far this year. That trails SPY, but is above the return of the average S&P 500 stock (RSP). And when SPY fell 9% earlier this year, Hedged Equity was down 2.7%. Thus, the model portfolio name.
If we go back to what I believe is the start of the modern investing era (1/1/2020), here’s Hedged Equity versus SPY. No, it didn’t approach SPY’s 15% annualized return. It “only” gained about 11% annualized. But its worst-case scenario was less than half that of SPY.
And perhaps the most “bottom line” aspect of it is the last row of info above. It actually produced ALPHA versus SPY. That simply means that pound for pound, adjusting for risk, it did better. It took about 2/5 of the risk (Beta=0.39%), but still made double-digit gains.
In my experience in managing other people’s money as I did for decades, the one thing I always emphasized about past performance when clients asked, is this:
Returns are inconsistent. But the process used to manage risk isn’t. That makes risk-managed portfolios more likely to succeed.
The stock market, at least the headline versions of it, are doing great. And that will continue…until it doesn’t. And when morale crashes, when liqudity is not as robust, when 401(k) flows into S&P 500 index funds taper off or reverse, when interest rates get too high to ignore and/or when inflation does, the cycle will repeat itself. Markets will crash, and with it, investor morale.
That’s when investors will separate into 2 camps:
Those who understand how pursuing return and managing risk work together to promote long-term success with less stress.
The rest.