Good Luck Outguessing

There is a sizable portion of the population who believe good investing looks like constant change in their portfolios. You hear phrases like, “There’s always a bull market somewhere,” suggesting no matter the environment there are ways to make money in stocks.

Sure.

I suppose I can’t argue with the statement. However, where investors fall flat on their faces is attempting to execute on that idea. Constantly seeking to divine where the stock market is going – and altering your investment portfolio in kind – is a fool’s errand. No one does it well over time.

From my perch, those who try tend  to underperform a portfolio that is more durable and less transactional. It’s fantastically hard to outguess the market.

Small company stocks in the U.S. provide a recent wonderful example.

Let’s go back in time to January 2025. The U.S. stock market was fresh off an amazing year, returning more than 25% in 2024. As January faded into February of 2025, the stock market marched even higher, increasing by nearly 3%.

And then President Donald Trump unveiled his barrage of tariffs on April 2, 2025.

The announcement largely caught the investing world by surprise in its size and scope.

The stock market promptly dropped by 17%. Small companies in the U.S. fared even worse. They were pounded by more than 20%.

As 2025 wore on, large and small companies in the U.S. recovered from the tariff lows experienced in April. But by the end of the year, the performance differential between the two was significant. Large companies produced a return of almost 18%. Small companies, by comparison, churned out a measly 6%.

Investors were wary of small companies’ ability to pass on the costs of higher tariffs to their customers. In addition, many small companies typically have operations based solely in the United States, whereas larger companies are often multinational, giving them ways to counteract rising tariff costs.

The result was a relatively paltry performance for small company stocks.

But just like trying to predict how small stocks would be rocked in 2025, it was equally challenging to foresee what they would do in 2026.

That was largely because the turnaround was the result of nine people dressed in black robes.

On February 20, 2026, the Supreme Court ruled in a six-to-three decision that President Trump did not have unilateral authority to levy tariffs in the manner he did. Not only that, but it was also determined that any importer that paid the unconstitutional tariffs was owed a refund.

As soon as the refunds were announced, small company stocks took off.

While large companies in the U.S. have clocked a solid performance in 2026 by returning 13%, it has been the small companies that have surged the most. They are up nearly 21% this year.

If you were trying to play the “there’s always a bull market somewhere” game, you would have had to crawl into President Trump’s head in late March 2025 to realize, before everyone else, that tariffs would whack small companies. And then you would have had to read the minds of nine Supreme Court justices in early February 2026 to anticipate the coming tailwind for small company stocks.

Good luck with that.

Here’s the good news: If you simply stuck with small companies through all of 2025 and into 2026, you earned a very healthy return of 18%. Plus, you avoided the time and stress of trying to outguess where the market was headed.

I’d take that any day – no guessing necessary.