Caution: Wall Street is a Two-Way Street

November 7, 2025

I have had the privilege of advising an array of clients over several decades. While making hay while the sun shines seems sensible, ‘always beating the market’ is not a realistic goal. I have found that what really matters to most investors is achieving one’s objectives vis-à-vis -

• supporting one’s lifestyle in retirement,
• helping the next generation or two with respect to education and perhaps housing and
• providing financial support to the organizations that they care deeply

My experience as an equity analyst and advisor to wealthy families leads me to believe that investors are well-served to accept that market timing is an elusive quest. As advisors our most important responsibility is to understand what each individual or family is trying to accomplish. With that understanding, our goal is to chart a course to achieve those objectives. We do so through a disciplined approach designed to achieve portfolio diversification.

I am not suggesting adhering to a sensible strategy is always easy. Investors are particularly challenged to stay the course when markets have been performing exceptionally well or poorly. It is at these extremes that emotions are more likely to induce actions that can be quite harmful. One of our highest priorities is to help each of you to come through the worst and best of times in good shape emotionally and financially. Market extremes often derail investors from achieving long-term success. A consistently applied approach to investment management is essential.

It is helpful to think about the challenges inherent in market extremes. During epic bull markets, news pertaining to the economy is often great and so are the quarterly earnings releases. It can seem exceedingly easy to discern ‘what’s hot and what’s not’ and allocate accordingly. Years into a bull run, it’s easy to imagine that the party is just getting underway. ‘We simply have to keep dancing.’ The problem of course is history shows that markets serve up significant surprises when they are least expected or welcome. During bear markets, ‘market gravity’ (e.g., sharp declines in things like the PE ratio) is the prevailing influence. Survival instincts compel some investors to ‘get out and stay out.’ The good news is that lean years teach many investors that beating whatever index is leading in a raging bull market isn’t the real goal. Rather, many investors come to appreciate the need to hold diversified portfolios. Doing so enables them to have peace of mind knowing that they can 1) invest prudently in preparation for the unknown twists and turns that likely lie ahead and 2) prepare for and survive the lean times. The important lesson learned is that survival is Job One. Our overriding objective is to manage risk in the context of the unknown future that lies ahead.

Lessons I have learned over these past 40 years

Things can and sometimes do get out of kilter in financial markets. One thing that I have witnessed repeatedly is the propensity for Wall Street to serve up risky opportunities when investors are willing to bear them and safety when investors are cautious. During the late stages of the 1990s bull market run that some (not all) firms aggressively marketed strategies that had recently performed exceptionally well up to that point. Risk taking was the name of the game and adds featured eye-popping returns. When markets moved the other way, so too did their marketing campaigns. I recall one firm that switched from advertising high octane stocks to things like money markets and other short duration fixed income. When asked why by a financial news organization, the response was honest and cautionary - ‘We design our ad campaigns around what people are wanting to own.’ In other words, they touted risky offerings when investors were clearly in a risk-on mood and vice versa. Before I began my career as an equity analyst in the mid-1980s, I had witnessed events that taught me that reversals are to be expected (even if they are unwanted). The collapse of my hometown’s all-important steel industry was first. During college, I also saw the boom and bust in the oil and gas industry. A few years later I witnessed the boom and bust in the commercial real estate market and the collapse of banks – major and minor ones. These and other events inform my belief that being overly aggressive or defensive is not a great way to pursue a favorable investment outcomes. The problem is Wall Street firms, venture capitalists and other denizens of high finance are known for providing too much and subsequently too little capital at extremes. It is part of the very nature of cycles. That’s why we diversify.

Discipline lies at the heart of our process

We know that when we allocate capital broadly (and then some might say stubbornly or foolishly stay the course), that we are going to be ‘long at the low.’ We never got out. We tend to stay the course because we believe that when it comes to major market segments (not individual industries or stocks) that declines – even the worst of them, have historically proven to be temporary. Even though a new all-time high could be 10+ years to occur. First, participation in the recovery is really important but it only pertains to investors who do in fact hold positions. Second, no market segments ever perform best or worst. By owning segments that have historically performed differently along the way, investors can likely achieve a smoother ride – both financially and emotionally.

“Diversification is the only free lunch in investing.” - Harry Markowitz

It is said that diversification doesn’t work all of the time, but it does work well over time. Market data bears this out. For those of you who find it helpful to look at market data over extended periods of time, I have included total return data and commentary for the major U.S. market segments going back over 30 years.i It strongly reinforces our conviction about managing portfolios with very deliberate allocations into market segments that can and do perform differently over time. We do not know when and where major inflection points lie. Nevertheless, we believe it is almost certain that highly significant economic and market surprises do indeed lie ahead. Prudence dictates that we manage risk and reward opportunities accordingly.

As always, I hope you find this letter to be interesting and helpful.

Richard Jones, CFA

Partner, Harmony Wealth Partners

ⁱ As the total return figures in columns D & E in the table below show, large cap growth stocks (e.g., the Russell 200 growth) are performing substantially better than other segments including things like small cap value (e.g., the Russell 2000 value). It is interesting to see that the current differential (column E) is similar to what we saw in the late 1990s (column B). Then and now, EPS growth for large cap growth was high and valuations expanded. That ideal combination translates into very high and attention-grabbing results.


When differentials favoring large caps (particularly exciting growth stocks) are so large, it can seem like ownership of other markets is not only unnecessary but costly. However, laggards in one period are significant leaders in others and vice versa.


The table immediately above shows the value of $1000 invested in each market segments over the specified time period. On the next page, I provide comments to aid your review.

Here are some observations about the tables on the prior page. As I have shared before, record inflows came into stocks in February 2000. The vast majority was invested in vehicles that were categorized as ‘growth’ or ‘aggressive growth’. While a surprise to many of those investors, we now know that the NASDAQ, Russell 200 growth and S&P 500 all peaked in March 2000. Those investment flows were particularly ill-timed. As columns A & B show, large cap growth (e.g., the Russell 200 growth), as well as mid and small cap growth lost over ½ of their respective value through 10/31/2002 as well as 3/09/2009. As column A shows, $1000 invested in the Russell 200 growth, declined 60% over the 9 year period (including dividends). During those same periods, the Russell Midcap value and small cap value indexes fared much better (e.g. they were positive). In columns C & D you can see that the Russell midcap value and Russell 2000 small cap value provided significant growth from 2/28/2000 thru 12/31/2013 and 12/29/2017. That was not the case for previously loved large cap growth (e.g., the Russell 200 growth). As columns E & F show, all segments of the Russell indexes performed well from the March 9, 2009 low through year end 2017 and the recent close on 10/29/2025. Finally, the Russell 200 growth performed very similarly as the Russell mid and small cap value indexes over the 25 and 26 year periods beginning on January 1, 1995. These results provide strong reason for investors to refrain from the temptation to add aggressively into segments that have performed particularly well recently. If anything, the data suggests that adding to lagging segments can potentially enhance returns. While we don’t know when leadership changes will occur or how long they will last, we believe investors are well served to hold diversified allocations and resist the very strong temptation to just allocate into the segment(s) that have been most rewarding to own over the most recent 3, 5, 10 or more years. That’s because extrapolation can be hazardous to your wealth.

Key lessons --

In generational bull market phases broad market indices can and do increase many-fold. These bona-fide bull phases are often 15+ year spans. They eviscerate prior bear markets and provide healthy gains that exceed things like inflation by really significant margins. That said having a lower exposure in the worst of times to the segments that perform least well can also be tremendously beneficial. Diversification helps ensure that is the case and so does periodic rebalancing. That's especially true for investors who are drawing on their investments to meet their financial needs and objectives.

How investors can prudently allocate capital gets particularly challenging and important along the way. Human nature, plus headlines and our collective knowledge get shaped by how markets perform along the way. There are times when the rewards are heavily skewed in favor of things that are highly visible. Specifically, when large caps and often large cap growth segments perform exceptionally well, investors of all stripes can be tempted to allocate into these market segments and consciously avoid things that are less familiar and lagging. When US large caps perform exceptionally well, it can be easy to say, ‘I don’t need or want small caps or international or bonds – I want growth and it is clear that US large caps provide it.’ While understandable, that more concentrated approach has often translated into unacceptable outcomes that defy investor expectations.

Any opinions are those of W. Richard Jones and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

The Russell Mid-cap Index consists of the bottom 800 securities in the Russell 1000 index as ranked by total capitalization. The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Expressions of opinion are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation.