When Markets Hit Historic Highs, What's an Investor's Playbook? Insights from a Million-Dollar Portfolio Manager

The Market Paradox: Gains Masking Underlying Risks

The numbers tell a dazzling story. The Dow Jones Industrial Average has climbed 14% year-to-date, while the S&P 500 sits up 17%, and the Nasdaq Composite has surged an impressive 22%. For the average investor, these gains represent validation of their market conviction. Yet beneath the surface, something troubling lurks: according to the Shiller Price-to-Earnings Ratio (CAPE), we’re experiencing the second-most expensive valuation in market history—a distinction shared only with the dot-com bubble era of 2000.

The implications are sobering. When that bubble burst, the S&P 500 collapsed 49%, while the Nasdaq Composite hemorrhaged 78% of its value from peak to trough. History reveals an uncomfortable truth: elevated valuations have consistently preceded lower 10-year average annual returns. As we head deeper into 2026, the old adage of “throwing darts” at trendy AI and quantum computing stocks suddenly feels riskier than ever.

The Long-Term Lens: Building a Resilient Core

Sean Williams, a seasoned portfolio manager, approaches this environment with deliberate restraint rather than panic. His philosophy mirrors that of Warren Buffett, the soon-to-be-retired architect of Berkshire Hathaway’s legendary track record: conviction married to patience.

Among his three dozen holdings—35 individual stocks plus one exchange-traded fund—the vast majority have been held for minimum one-year periods, with several now exceeding a decade. This isn’t stubbornness; it’s strategy grounded in data. Bespoke Investment Group’s research shows that since the Great Depression began in September 1929, the average bear market has persisted just 9.5 months. Being a long-term pessimist during temporary dislocations has historically cost more than it saved.

Importantly, Williams maintains conviction that an AI bubble, even if it materializes, won’t devastate his core holdings. Take Meta Platforms (NASDAQ: META), his fourth-largest position by market capitalization. Approximately 98% of Meta’s revenue flows from advertising across Facebook, Instagram, WhatsApp, and Threads. While the company has woven generative AI into its advertising infrastructure, a potential AI correction wouldn’t fundamentally compromise Meta’s revenue engine.

Strategic Dry Powder: The Art of Selective Selling

If Williams isn’t aggressively reshuffling his portfolio, what is he doing? He’s quietly building ammunition. By trimming long-term positions with outsized gains and harvesting losses on holdings that no longer fit his thesis, he’s increasing cash and cash equivalents. Rather than parking this liquidity in a broker’s paltry 0.01% yield, he’s deployed it into the iShares 0-3 Month Treasury Bond ETF (NYSEMKT: SGOV), which offers dramatically superior returns.

This mirrors the playbook of corporate America during downturns: jettison non-core assets to strengthen the balance sheet. By divesting positions that no longer align with long-term goals, Williams reduces current-year capital gains while positioning himself to capitalize on panic-driven selloffs. History shows these windows exist—they just don’t last long.

Hunting for Bargains in an Overheated Market

Finding true value in today’s market is admittedly like searching for a needle in a haystack. Yet Williams has remained opportunistic. During April’s brief market swoon following President Trump’s tariff announcements, he opened or added to six positions. Since then, buying has been sporadic—a reflection of how compressed valuations have become.

One standout addition: PubMatic (NASDAQ: PUBM), an adtech firm wrestling with programmatic advertising headwinds from a major client. Despite near-term turbulence, the company maintains positive operating cash flow and sits perfectly positioned for the digital advertising surge in connected TV. It’s the kind of unfashionable, overlooked opportunity that patient capital rewards.

Similarly, Williams expanded his stake in Goodyear Tire & Rubber (NASDAQ: GT). The automotive supplier is midway through a transformation: divesting non-core assets, lowering debt, and concentrating on higher-margin tire and service operations. Won’t win any growth-rate beauty contests, but as a cyclical enterprise with reasonable fundamentals trading at historically depressed multiples, it warrants consideration.

Income as Ballast: The Dividend Advantage

Perhaps the most underappreciated strategy during expensive markets is tilting toward dividend payers. Hartford Funds’ research spanning 1973 to 2024 reveals that dividend-paying companies have more than doubled the annualized returns of non-payers. Beyond returns, income stocks demonstrate lower volatility than both non-dividend-paying peers and the broader S&P 500.

Across his 36-security portfolio, 18 now throw off dividends. A prime example: Sirius XM Holdings (NASDAQ: SIRI), the satellite-radio operator Williams added to during early-year weakness. While growth has disappointed, profitability remains robust, and the dividend yield now exceeds 5%. As a legal monopoly in satellite radio, future subscription price hikes should more than offset recent subscriber erosion.

During peak valuations, dividend stocks provide a dual benefit: recurring income that cushions against equity price swings, plus the statistical evidence that they’ve outperformed non-payers over multi-decade horizons. It’s not sexy, but it works.

The Takeaway: Strategy Over Emotion

Managing a seven-figure portfolio during a historically expensive market requires discipline over emotion. The strategies employed by experienced investors like Sean Williams—maintaining core convictions, accumulating dry powder, pursuing selective opportunities, and leaning into dividend income—aren’t revolutionary. They’re time-tested approaches adapted to current conditions. In 2026, that temperament may prove worth far more than the ability to correctly call the next AI stock winner.