Summary Market leadership is shifting as major trades roll over, but rapid reversals remain possible in today's algorithm-driven environment. Index fund flows and passive investing have fundamentally altered market dynamics, making stock-picking more challenging and indexation effects unavoidable. Portfolio allocation size matters more than simple buy/hold/sell labels; conviction and volatility should drive position sizing. Sector movements are increasingly dictated by ETF flows, causing good companies to underperform as index dominance overshadows fundamentals. “Mediocre.” I guess there are many worse things we can be called. I've been called plenty of those in the comments section here, as I approach 2,500 of those answered in 3 years. Quite a journey so far. Thanks to all who have taken the time to read my work during 2025. Mediocre is also how I describe how Bitcoin has performed historically. Does that sound strange, given its monster move earlier this year to an all-time high? Or, due to its even bigger run-up since before most of us knew what cryptocurrency was (or when “staking” was a misspelled way to say, “I'm making steak for dinner”)? Here's what I'm getting at. This is Bitcoin's price since mid-November of 2021. So more than 4 years ago. That's when it touched $60,000. Since that time, it has doubled, and then some, topping out at $126,000 on October 6 of 2025. And now, around $88,000 near year-end 2025, off 30% from that peak, it is up only 34% from where it was more than 49 months ago. So about an 8% annualized return. Data by YCharts The bad news: that's a lot more risk to take on when, as we see below, T-bills earned half that return, despite starting near a 0% rate in late 2021. And the much-maligned non-US segment of the stock market, represented above by iShares MSCI EAFE ETF ( EFA ), had a nice year in 2025, but that followed 3 years of zilch. Yet based only on the strength of a solid past 12 months, EFA's return since that November 2021 starting point now exceeds that of Bitcoin. As we see above, EFA (orange line) and Bitcoin (purple line) took very different directions but ended up at about the same spot. What does this say about Bitcoin's future as an investment? NOTHING. What does it say about perception versus reality when it comes to popular asset types? A LOT. This is why I recently published this table as part of a detailed article on how I'm using 10 ETFs as the current “core” of my Allocation portfolio that I run for investing group members and also share with subscribers at my website. The goal is to coach investors based on my experience allocating through modern market conditions, with risk management at the forefront of everything. ETF Yourself Using Bitcoin to lower risk? You might be surprised to hear “Bitcoin ETF ( IBIT )” and “risk management at the forefront” in the same place. That's the whole idea. To combine asset classes that often exhibit LOW CORRELATION to each other, particularly when markets tank. Look, I get it. Crypto-millionaires and even billionaires are out there. I live close enough to Miami, where many of them now reside, to realize that. But with all investments, there are the early adopters. And while some hit it big, time after time, for many it is more like a strategic “lottery ticket.” The way venture capitalists reportedly fail 90% of the time . But if that one out of 10 takes off, the other 9 are quickly forgotten. Among my other pursuits, I own a partial interest in some racehorses. It's the steadiest part of the game (“claiming”), but it is still a sport in which one win pays for a string of 5th- and 6th-place finishes. The focus here is on the iShares Bitcoin ETF, the largest of its kind. And its relationship to the S&P 500, past and potentially in the future. Because recently, the biggest, most exciting trades of the last few years have started to roll over. But as I recall as a past dog owner, they can flip themselves right back up in a nanosecond. So that's always a possibility. When markets are driven as they are now by algorithms and index fund flows, and nearly every market segment picks a side (are you a risk-on asset or a risk-off asset?), this is something we'll all need to live with as investors. Market indecision is much more common these days. And it leads me to the key factor of position-sizing. Position-sizing: a quick introduction My entire investing process is about this: “Buy/Hold/Sell” are very misleading ways to characterize any investment at any point in time. It says everything about WHAT you are owning or not, but not a thing about HOW MUCH AS A PERCENT OF YOUR PORTFOLIO you are allocating to it. If I have a buy rating on 2 stocks, 1 might be 1% of my portfolio (more volatile, less committed to it, just dipping my toe in for starters). And the other is 5% of my portfolio. That might be because it is much less volatile, and I need to own more to get the dollar return I seek. Or, I might just believe it is an ideal situation (chart-wise, which is my main approach). Now to that IBIT situation and why I have it as a semi-regular spot among 10 ETFs in that allocation portfolio. I've smoothed this out to 3-month rolling returns, with 1-month moving windows. And while IBIT is just reaching 2 years old, the thing with Bitcoin is this: it acts differently with so much ETF money having plowed in. The same can be said for the S&P 500. Data by YCharts Yet in that picture above, I see a pair of ETFs that sometimes rise and fall together but are different in terms of volatility and the potential to move independently of each other. I can't say that about a lot of equity ETFs compared to SPY and about a lot of crypto ETFs compared to IBIT. So for now, they exhibit enough for me to allocate to each, just in varying allocations. Based on their relative attractiveness. These are the basics of diversification. But it is SO MUCH TOUGHER to find nowadays. Thanks to the forces that now move markets. And the jury is still out on Bitcoin's true place in the long-term fabric of the investor's total picture. If you were there more than 10 years ago, congratulations, you are up 15,000%. If you jumped on board 4 years ago, you underperformed much of the stock market. Data by YCharts And if you were one of many who piled in at the start of 2024, when IBIT and 11 other spot Bitcoin ETFs made it easier to own crypto, you are up 87%, comfortably ahead of SPY over that same time. Now, with reference to this chart below, just 3 months ago IBIT led SPY by 168% to 44%. So that margin went from 124% to under 40% in a hurry. Data by YCharts But that again is my point. Stock picking or allocating across many types of stocks via ETFs is not nearly as productive or efficient as it once was. And the IBIT/SPY pair is part of a mountain of evidence supporting that, which grows every day. But since IBIT is still being treated as the nascent asset it is, this is still a good time to consider it. So it made it into my 10-ETF mix, something I frankly was not expecting. That is, until I whittled 4,400 ETFs down to my forced target of only 10. Now, I allocate tactically AMONG the 10 in that table above. I own at least a little of each at all times, as long as it is in the 10. A “permanent portfolio,” if you will. But where are the individual ETFs that make up the 10? While most will stay on the roster for a long time, some will be swapped out. Not when they look unattractive from a short-term return standpoint. When they are no longer providing a diversification benefit, either long-term or short-term. For now, IBIT makes the cut. I can control risk in it with that 2% minimum weighting and control my own excitement toward it (if that happens) with that 10% maximum weighting. And I remind myself that 5% is a “long-term expected average” position for IBIT within the 10 ETF portfolio, though 2% to 10% is the range I'm allowing myself to trade it within. To me, THAT is investing today. Not simply what I own, but how much and how often. Do I like SPY or IBIT better? I like both to different degrees at different times. And in the 10-ETF portfolio, I left SPY out entirely in its cap-weighted form, opting instead to use a mix of QQQ-DIA-RSP, as that trio is much more flexible than SPY alone (separate article on that coming soon). IBIT's technical chart does not look robust, and it is still subject to a combination of big risks. Just ask Michael Saylor (head man at Strategy, symbol MSTR). Those risks include a potential top in crypto enthusiasm, due in part to a peak in market liquidity, as well as repatriation of assets toward home currency assets (China and Japan are doing a lot of that currently). Barchart I've documented SPY's risks here many times for many years. And in its top-heavy form, it still hangs in there, for now. IBIT, SPY, and the bigger portfolio-wide impacts So, why do I make room for at least a 2% allocation to IBIT and also to each of QQQ, DIA, and RSP in that 10-ETF model portfolio? Because: I don't think I'm smarter than the market. I want diversification, but smart diversification, not “I think I'm diversified” diversification, which fails when we need it most. I have a mechanism to produce indicators as to how I want to rotate between those 4 ETFs and the 6 others pictured in the table. My method (ROAR) is not the subject of this article, but it will be in others. And it's there not to be pushed on people, but to show how SOMETHING should be your allocation mechanism. Not just “every 3 months I rebalance.” IBIT allows me to take some shots with small amounts of money, by design. In its brief history, it has had an 80% rally in 3 months and lost more than 25% in 3 months. It's 30% off its high as I write this. 3 months' time! So I expect there to be tactical opportunities to spot in the charts and rotate between that 2% and 10% allocation range. Data by YCharts Finally, using SPY as a proxy for the trio of stock ETFs I use in the 10-ETF portfolio, but the only “offensive weapon” I use in my 2-ETF portfolio (alongside BIL, a T-bill ETF), here's the range of possible outcomes based on the past. Since just before the pandemic, it has shown the potential to move more than 20% in either direction over a 3-month period. Data by YCharts That's a good reason to not set it and forget it, even if US equities are the default anchor of the portfolio. But those defense ETFs are the backstop, something I think more investors should consider the case for in their portfolios. This is all about risk management WHILE pursuing return over all time frames. My goal is to keep drawdowns below 5% and sacrifice some upside at times if that's what it takes. But am I limiting my ability to compete with a traditional “balanced” portfolio over time? Not at all, as I'll continue to discuss here in the new year. Because risk management does not mean capping returns. It means keeping enough capital intact at all times to live to fight another day, or year for that matter.
