Does Discipline Still Matter? (Spoiler: YES!)

May marks the beginning of my 32nd year in this business. In that time I've watched investors chase dot-com stocks into oblivion, flee to cash after 2008, and more recently pour money into mega-cap tech as if gravity had been permanently repealed. Human nature doesn't change much — but markets do.

Here's a stat that should anchor everything that follows: academic research tells us that roughly 96% of your return as an investor is determined not by which stocks you pick, but by the asset classes you choose. Domestic or foreign. Large or small. Stocks, bonds, real estate, commodities, cash. Those decisions dwarf everything else. Stock picking — the thing most investors obsess over — accounts for the remaining rounding error.

Keep that in mind as I describe what's happened over the last fifteen years.

The Magnificent Few

US large-cap growth has been on an absolute tear since the financial crisis. What started as FAANG became MAMAA and is now the Magnificent 7 — Microsoft, Nvidia, Apple, Amazon, Meta, Alphabet and Tesla. These are extraordinary companies: enormous, fast-growing, wildly profitable, and well-managed. No argument there.

But here's what that dominance has done to the "market": the top five companies in the S&P 500 now represent 26% of its total value. The top ten account for nearly 36%. Think about that. When you buy an S&P 500 index fund believing you own "the market," you are placing an enormous concentrated bet on a handful of Silicon Valley giants. That's not diversification — that's a crowded trade with a diversification label slapped on it.

Meanwhile, for fifteen-plus years, virtually everything else was left for dead. Small cap. Value. International. Emerging markets. Real estate. Commodities. All of it lagged badly enough that investors — including plenty of professionals — began to wonder whether diversification itself was a failed strategy.

I'll confess: I've had a touch of FOMO myself. I remember listening to Jensen Huang speak around 2000 — this was early Nvidia, long before the world knew what a GPU was worth — and I never pulled the trigger. Had I invested then, I'd probably be choosing between beachfront property in Kauai and Palm Beach right now. Probably both.

But the Tide Is Turning

Here's what's happened over the last year that isn't getting nearly enough attention: international developed markets, emerging markets, small cap value, and commodities — oil, gas, gold and silver — have all quietly and significantly outperformed everything except the narrowest slice of mega-cap tech.

That's not a blip. That's the beginning of a rotation.

The laws of finance, like the laws of physics, cannot be suspended indefinitely. Fifteen years of outperformance by a handful of US tech giants has produced valuations that require flawless execution in perpetuity to justify. One stumble — regulatory, competitive, or simply the market's eternal tendency to mean-revert — and the compression happens fast.

The Question I Refuse to Stop Asking

Should we abandon a discipline simply because it has underperformed for a decade? My answer — after 32 years — is an emphatic no. And here's why: the periods of maximum underperformance for a sound strategy are almost always the periods just before it reasserts itself. Capitulating at the bottom isn't discipline. It's the most expensive mistake an investor can make.

Small, value, and profitable companies have outperformed over virtually every meaningful long-term stretch of market history. That hasn't changed. What changed is that fifteen years of extraordinary tech dominance made it feel like it had. Those are different things.

What to Do Right Now

Stay disciplined. Stay diversified. And consider this: in a world of genuine geopolitical uncertainty — reshoring, energy competition, dollar instability, global conflict — natural resources are not just a nice complement to a portfolio. They're a rational hedge against the very risks that mega-cap tech is most exposed to.

Oil. Gas. Gold. Silver. These aren't exciting. They don't have keynote speeches and product launches. But they have something better right now: momentum and a geopolitical tailwind that isn't going away and are a hedge against worst case scenarios playing out.

The trade of the last fifteen years was betting everything on US large-cap growth. The trade of the next fifteen years is likely to look very different. The investors who will benefit most are the ones who didn't abandon their discipline when it was uncomfortable — and who had the foresight to own what everyone else had ignored.

That's not market timing. That's how this has always worked.