Why Many Investors Feel Worried Today
Many investors are feeling stressed right now. People who hold small-cap and micro-cap stocks are seeing big drops. Some even say their portfolios are down by 40–50%. This is creating fear and confusion. But if we look deeper, the main reason for this worry is something called recent bias. This means our mind focuses too much on what happened in the last few years and forgets the bigger picture.
How Recent Years Affected Our Thinking
In the last five years, micro-caps gave very strong returns. There were years with 35%, 75%, 65%, and more. Small-caps also did very well in many of these years.
Mid-caps were also steady. Large-caps were slow earlier, but recently they have started improving. Because of this strong micro-cap and small-cap performance, many people assume the same trend must continue in 2025. But markets do not move in a straight line.
The Market Works Like a Relay Race
If we see the larger picture, the market behaves like a relay race. Sometimes large-caps lead, sometimes mid-caps, sometimes small-caps, and sometimes micro-caps.
The leadership keeps changing. This year small-caps are weak. Next year they may rise again. Sometimes the cycle stays down for two years and then gives very strong returns later. This is a normal part of market cycles and not something to fear.
How Ratio Charts Show These Shifts
If we look at the long-term ratio of large-caps to small-caps, it moves between certain levels again and again.
For almost 20 years, this ratio has stayed between around 1.2 and 2.0. Right now, the ratio is moving in favor of large-caps. Earlier, from 2020 to 2025, it was moving in favor of small-caps. This did not mean large-caps were falling – it only meant small-caps were rising faster. In the coming years, large-caps may rise faster, or small-caps may rise slowly while large-caps rise more. Both are possible.
Why Balanced Allocation Is the Real Solution
This does not mean anyone should exit their small-cap positions completely. The better approach is simple: allocate wisely. Keep some money in large-caps and some in small-caps. Enjoy each cycle when it comes. Rebalance your portfolio once a year. When one part grows too fast, shift a little to the other. This removes stress and stops investing from becoming a guessing game. With this approach, your long-term equity curve becomes smoother and more stable.
Stay Calm and Think Long Term
Market cycles will keep coming and going. Sometimes one segment will shine, sometimes another. The goal is not to chase the winner every year, but to stay invested with a clear plan. A balanced and steady approach helps investors handle down years and benefit from future up cycles with confidence.
