The Few Bets That Matter
Concentrated Equity Investor, AI Infrastructure
US small caps are a losing game against investor psychology. They demand time spent understanding concepts no one cares about, only to end in 5% positions sold too early, and net worth stagnates despite good-looking screenshots. Large positions in cheap blue chips are a much better and easier game. x.comÂ
A suspected crash and liquidity squeeze make small-cap longs unattractive initially. x.comÂ
US small caps are a classic investment trap because IWM earnings per share have consistently disappointed while S&P 500 earnings per share have consistently over-delivered. Investors mistake smaller companies for greater upside. x.comÂ
US small caps are set to outperform as capital rotates down the cap structure, as it does when a bull market broadens. After years of lagging megacaps, small caps historically run hardest in the back half of a bull, once megacap leaders are extended. Breadth is widening, with over 30% of S&P 500 members beating the index in 2025, the best since 2021. The Fed is easing into strength, and rate cuts that lower discount rates and cheapen financing especially help small caps and long-duration growth. … Show more
The Russell 2000's cheapest P/E among the major indices does not make small caps a buy. Once growth and earnings revisions are factored in, it looks like the least attractive index of the group. x.comÂ
Small and mid-sized businesses won't do well at current interest rates, so the broadening-out trade into US small caps has failed again, as it did in 2023, 2024 and 2025. Morgan Stanley just downgraded US small caps to neutral from overweight versus large caps. x.comÂ
Betting against US small caps means fighting trend, valuations and smart money, all of which favor the bulls. x.comÂ
Small caps leading like this only happens when liquidity is everywhere, the equity version of shitcoins pumping near a top. The Russell 2000 is back at new all-time highs and running ahead of the S&P 500. x.comÂ
US small caps look overextended: the Russell 2000 is only 3% off its highs and is full of weak companies that were spared the selloff because they aren't in the Nasdaq 100. Single stocks are whipping around while the S&P 500 stays muted, and the S&P could be 15% lower without anyone thinking it unwarranted. x.comÂ
US small caps are in a 2021-style mania worth riding up hard, but a downturn will come. Revenue and cash generation have become irrelevant, IPOs are overvalued, pump-and-dumps are everywhere, everyone crowds the same themes and a few companies hold the market up; a wave of SPACs would mark the top. The second half should be volatile. In a large correction, high-beta names will drop regardless of sector, and cash-generative companies with real moats and growth will be safer. x.com x.comÂ
Repeatedly buying high-quality large-cap stocks is the easier path to real wealth because high-beta speculation is extremely risky: those stocks might 10x or go to zero. Too many speculative holdings are why portfolios underperform. Palantir, AMD, Micron, Meta, Apple and Marvell are the examples. x.comÂ
