It’s an uplifting feeling when financial markets act in such a way that wealth increases with seemingly little effort, at least for those who own securities, especially equities. In 2025, financial assets performed that service splendidly, as markets worldwide lifted—often to record highs—and several economic and market sectors did exceptionally well for their holders. US stocks rose about 17%, while international equities did even better; having avoided much of the market turbulence that hit the US especially hard in April, an index of world markets rose over 20% in 2025.
Especially prominent were the results achieved, once again, by the big US technology company shares. This in turn has created a market that is more concentrated than ever before, in which the top 10% of US stocks account for a record 78% of total market capitalization. Indeed, the big tech groups contributed well over half of broad stock market returns. This market dynamic has coincided with a vast migration of money, as public investors lost patience with “active” funds (loosely defined as those attempting to “beat the market”) and transferred $1 trillion to other vehicles—largely “passive” or index-type funds—that follow the tech-led averages. Time will tell whether this was a wise move; active managers have a middling record when contrasted with the averages, but in the event that the mood with respect to hi-tech sours, the popular “diversified” market index funds will very likely suffer.
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With relentlessly rising stock markets, falling interest rates, and “fear of missing out” spreading to practically all market participants—from bankers and deal makers to retail punters—the fact that there has been a notable loosening of financial morals is not surprising. In a financial system wallowing in cash, a relaxation of attitudes toward financial risk was to be expected, especially as memories of previous misdeeds fade. Despite the fact that libertarianism has a poor record when applied to finance, recent moves to let banks police themselves is one of the most significant signs of regulatory memory loss. Banks—the locus of frequent crises and buyouts—are highly-leveraged entities that require careful monitoring due to the risks inherent in such structures. We can hope that managements find prudent lending to be in their self-interest, but twenty years ago they clearly didn’t. Any impulse to probity is offset by a system of incentives that offers visions of riches that only the most disciplined and virtuous can resist. The financial crisis created the impetus for tighter controls on bank capital and lending, but now that these controls are being relaxed, the institutions can hold much less capital in reserve, and can use the excess for higher-risk, higher-profit lending in such areas as merger transactions. Banking upsets can take a long time to develop, so we don’t expect disruptions or crises any time soon (though repeats of the Silicon Valley Bank episode are certainly possible). However, the probability of trouble eventually emanating from the sector is now higher than it was before regulations were relaxed. As one commentator put it: “banks have been given freedom to make the same mistakes again.”
Interestingly, periods of financial promiscuity represent nirvana for long-term investors, as commitments made in more propitious times for buying, sometimes over many years, can be harvested with gusto (“feed the birdies when they’re hungry” is the investor’s alternative to “fear of missing out.”). But for those who are more circumspect about throwing money at ever-rising markets, the situation creates a quandary about what to do. As a wise market operator once said: “One should not run after street cars or stocks. Have patience, the next one will come along eventually.” Much patience may be required. The buying pressure pushing stocks ever higher, in the face of so many concerns—both financial and geopolitical—appears to be gaining pace.
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Among the more controversial developments in finance over the past couple of decades has been the movement of money out of public securities markets and into “private equity” (aka PE) controlled by specialized investment management firms. PE transactions might include the purchase of non-public businesses, or the removal through purchase of previously public companies from stock exchange trading. Significant borrowing is normal for such deals. The theory underlying this investment approach maintains that PE firms’ employment of financial and managerial expertise—in order to increase business value—will permit them and their investors to “exit” their commitments via sale at a profit (such businesses are often returned to publicly traded status as well). PE has become a very significant player in finance; indeed The New York Times recently reported that with $7 trillion of investor assets, PE is “one of the biggest parts of the global economy.”
There are many risks entailed in PE: competence of the buyers, prospects for the business, relative lack of transparency, the burden of heavy debt loads, and high fees, to name a few. There is little wonder, therefore, that investment in such transactions has historically been limited to “sophisticated” investors, both institutional and individual, who presumably can evaluate managers, understand the risks, and tolerate potential losses. Recently a new risk has appeared that complicates the “exit” process responsible for PE profits: there are too few buyers for the re-vamped businesses the PE groups are attempting to sell. This has dampened the enthusiasm for PE among its traditional proponents, with many cutting back on their allocations of funds to the industry. Due to the weak exit environment, some PE firms have resorted to self-dealing: selling businesses to other funds the firm manages, instead of to third-party buyers. Nevertheless, in the midst of this new, more difficult environment, PE firms have successfully pushed regulators to allow average investors, through their 401ks for example, to have access to the industry and its supposedly higher investment returns. Not accidentally, this move gives PE groups access to hundreds of billions of dollars of fresh funds. As much as Wall Street may complain, there are reasons why financial regulation was created, and this is one of them.
The revival of speculation in precious metals that has been building for several years reached a crescendo in 2025 when confusion in international trade, uncertainty about interest rates and currencies, and fears of inflation pushed the group to highs far above those experienced in years past. Gold rose over 60% last year, reaching nearly $4,600 per ounce at one point; it had traded at $2000 in early 2024, which was then a multi-decade record. Gold’s poor cousin, silver, experienced an even greater bounce in percentage terms, hitting $80 per ounce and rising about 150% over the year, reaching record highs repeatedly.
Much gold demand comes from central banks seeking to diversify their reserves, often away from the US dollar, in response to uncertain trade and economic policies. But the most important factor in demand for gold recently has been “retail” money from small operators hoping to cash in on a fast-moving trade. Both stimulating and catering to this interest has become an online industry that practices the old alchemy of turning enthusiasm among the uninformed into gold—for that online industry. Unfortunately, public enthusiasm for well-established and hitherto successful investment ideas usually signals the approaching end of the favorable trend.
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A few months ago, we commented on a fanciful financial stratagem that had come into vogue over the last several years, but whose popularity seemed to have peaked in the summer of 2025: the corporate purchase of cryptocurrencies. Not surprisingly, the fate of the “crypto hoarders” has grown more dire since then. Based on the idea that crypto currency prices will continue to rise and take hoarder securities along with them, the hoarders’ stocks had already tumbled when Bitcoin and other crypto “assets” began to slide in late summer. Perhaps sensing the approaching end of this house of cards, the company that originated the scheme sold securities to create, ironically, a cash hoard for getting through hard times. If nothing else, such a move demonstrates that the “digital asset treasury” business model is fundamentally flawed.
Viewing the behavior of the crypto hoarder promoters, as well as the retail punters who are often “first in, worst out,” it is tempting to feel some schadenfreude, especially as the risks have been so obvious. But the fact is, their loss hurts us all. When people are burned by capital markets, they tend towards hesitancy in the future. This impacts the ability of businesses to raise capital. It also depresses the valuations that investors would otherwise enjoy. Most of the time this effect is infinitesimal in markets as deep and broad as the US, but the impact can become serious if enough people are harmed and come to feel that they have been swindled by a rigged system, as was the case in the aftermath of the 1929 crash in the US. Following that debacle public participation in the markets remained subdued for a generation.
For over four decades it has paid to “buy the dip” when markets go aflutter; people who have resisted the urge to trade in and out of securities and funds have benefitted from the long-term rise in values. Understandably, many have come to view investment accounts as a reliable source of wealth or count on them for reaching long-term goals such as creating sufficient retirement income. But “a bull market is not a financial institution,” as the investor Benjamin Graham once said. We have always viewed financial markets as useful tools, but they are not our friends and must be approached with caution, especially now. Given the valuation and concentration risks, as well as the spell of speculation that currently has the markets in its grip, we feel the possibility of a setback is elevated, and it could be so severe as to upset well-laid plans, or even undermine the faith in the system on which broad participation in the public economy depends. Graham also admonished his readers to “invest with an eye to calamity,” something that is difficult to do when the market beat goes on and on. Nevertheless, investors would do well to act reasonably, avoid hype, and at all times remember the old Wall Street saying: “return of capital is as important as return on capital.”
Dennis Butler, MBA, CFA
Commentary