Why I Was Wrong to Be Bearish on U.S. Stocks

A year ago the author wrote a post predicting U.S. stocks would fall. Instead they rose 16%. In this reflection he asks: where did he go wrong?

1. Overfitting: seeing patterns that weren't there

Back then he saw several signs that reminded him of the 2021 mania: Chamath filing for a new SPAC, Zuckerberg paying top dollar for AI researchers, and the S&P 500's price-to-sales ratio near an all-time high.

But each signal turned out to be less meaningful than he thought. Chamath chases whatever pays. Zuckerberg often overpays and later looks like a genius. And the P/S data itself was wrong.

After checking revised data, he found the 1999 peak was 2.09, not the 3.41 he had used. The story was completely different. The P/S ratio, he now realises, no longer signals what it used to because today's companies have higher margins.

More importantly, the speculative excesses of 2021 (NFTs, DeFi) mostly failed, while 2025's speculative bets on AI are paying off. Anthropic's revenue run rate jumped from $5 billion in July 2025 to an estimated $74 billion a year later -- a 15x increase.

2. Forgetting the base rate: stocks usually go up

He also forgot a concept he wrote about in 2021: base rates. Historically, U.S. stocks rose in 7 out of every 10 years, averaging about 9% annually.

That means even with many warning signs, the most likely outcome for the next year was an increase. He admits he failed to respect that statistical reality.

3. Don't time the market; stay alive

Instead of trying to time the market, he argues, it's better to have a portfolio that can handle volatility. If you can't stomach normal market cycles, what you hold isn't a portfolio -- it's a bet.

His wrong call cost him about 4% in his 401(k), but he hasn't changed his allocation. He's still 80/20 (stocks/bonds). With a growing family, that conservative mix turned out to be the right choice for his situation.

In summary: the author learned that market predictions are hard, and what matters most is surviving whatever the market throws at you, not being right.