Don’t Stop ’Til You Get Enough

This was the title of a 1979 song by Michael Jackson. The phrase is apropos for the way most people are presently approaching the stock market. They say, “Everything is great and will be as far into the future as we can see.” In this Market Comments we’ll focus mostly on the stock market and less on bonds.

This past year was another plus year for big-10 stocks. Exhibit 1 shows the investment return of various market measurements for the year ending December 31, 2025.

You Think You Are Diversified?

It appears that most investors today don’t really understand how concentrated this stock market is in just a few stocks. They believe they’re diversified by owning the S&P 500 Composite since there are 500 stocks. If they would dig deeper into the makeup, they would realize that is not the case. Exhibit 2 in 2025 shows the top 10 stocks (Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Meta Platforms, Tesla, Berkshire Hathaway, Eli Lilly) in the S&P 500 Composite.

These 10 stocks made up almost 43% of the total average. Think about that for a moment. This means the other 490 stocks are about the same. When a meaningful market correction comes, you could see these big names getting hit the hardest. We own some of these stocks, and our investors will see that we have already or will decrease our exposure to them. We think 2026 could be a volatile year even if it ends up positive. We believe most investors will be surprised at the volatility of the S&P 500. This is one of the main reasons we also own numerous holdings in a variety of stocks. In a market decline, this dampens the decrease.

And the Beat Goes On!

Many times, when the stock market ends the year on a positive note, it then flows into the next year. It wouldn’t surprise us to have a better first quarter in 2026. But somewhere in 2026 could be the market weakness we’ve been looking for because of valuations; 2026 is the second year of the four-year presidential cycle. These second years have historically been the weakest of the cycle. Exhibit 3 shows historical returns.

The reason for this is usually pain from new government policies, mid-term elections and less economic stimulus. It’s also notorious for the highest volatility and the deepest intra-year pullbacks. A number of large selloffs have occurred in these second years. The median gain is only 1%. Remember the last two second years: 2018 was down -6%, and 2022 was down -19%! Our thinking at Oxbow is that 2026 could be more volatile both up and down. The silver lining is that these mid-year, tough declines often have set up good markets into the following year.

Everyone Is In …

When we say everyone is in (the stock market), we mean individuals, institutions, foreigners, young people and Uber drivers! It’s amazing how many people tell us about their market knowledge. Yet very few remember a real bear market. Notice Exhibit 4 from our friend David Rosenberg.

American households have over $50 trillion of stock exposure. That’s 100% higher than five years ago. For only the second time in history, households have more money in stocks than in real estate. Also notice the following headlines from The Wall Street Journal that teenagers and military personnel have found an “easy” way to make money. That didn’t work so well in Bitcoin the last three months.

What we at Oxbow have been harping on the last two years is to keep a balance. Have some liquidity for rainy days. A good example: Warren Buffett has 30% in U.S. Treasury investments. Something to think about!

Words to Persons with New Money…

All our lives we’ve heard from financial-planner types say, “It doesn’t make any difference when you start investing. It all works out over time.” Experience tells us otherwise. Exhibit 5 shows how two retired people invested. This is from Jason Zweig of The Wall Street Journal. Each retired and invested $1 million in the S&P 500 and withdrew 4% annually. The difference is in timing. The first investor started on December 31, 1999, before the 2000–2002 bear market. The second investor started on December 31, 2002. Exhibit 5 shows the results 20 years later.

Remember, they were withdrawing 4% per year. The investor in 1999 had only $890,000 20 years later. The investor in 2002 had more than $4 million. Use 1, 5, 10 or 50 million. The results are the same. It’s true that stocks return better than other financial assets over time. But be aware of timing. Almost every indicator we use to measure valuations is currently at extreme highs. This is particularly true for brand-new money.

Where Is Oxbow Positioned?

The year 2025 was in our opinion a good one for all three Oxbow strategies. Our returns were what we wanted considering our high exposure to short-term U.S. Treasury bills and notes. In the conservative fixed-income portfolio, we moved a larger amount of U.S. Treasury positions to two-year maturities. Rates this year will probably decline as the economy shows some weakness. That being the case, we want to lock up some of our achieved returns. Our long-term growth portfolio also had a good year in 2025 with great diversification. On a risk-adjusted basis, we were where our Treasury position was in place for future purchases. Meanwhile, our high-income strategy had a great year with gold, silver and gold miners helping.

Moving forward into 2026, we would expect some euphoria to carry over into the first months of the year. Most investors will be really all in if the averages reach new highs. This may set the stage for the volatility we discussed earlier. Either way, at Oxbow we will hold to our discipline of not overpaying for investments.

We wish you the very best in the new year.

Ted Oakley

Bob Walsh

“Every investor needs to answer this question in order to better know themselves: Do you worry more about the risk of losing money or the risk of missing an opportunity?”

–Ted Oakley

“I fear the day that technology will surpass our human interaction. The world will have a generation of idiots.”

–Albert Einstein

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of the firm and are only for general informational purposes as of the date indicated. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is not intended to be relied upon as specific legal or tax advice or investment recommendations for any individual as the information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. Investments involve risk and are not guaranteed.