Navigating an Expensive Market: A Million-Dollar Portfolio Strategy for 2026

As 2025 winds down, investors can celebrate impressive gains—the Dow Jones, S&P 500, and Nasdaq Composite delivered 14%, 17%, and 22% returns respectively. Yet beneath this euphoria lies a troubling reality: markets are now priced at levels rarely seen before.

Using the Shiller Price-to-Earnings (CAPE) Ratio, analysts have determined that valuations rank second-highest since 1871. The only comparable period was right before the dot-com crash, when the Nasdaq eventually plummeted 78%. This historical context matters because expensive markets have consistently underperformed over the following decade.

The Philosophy Behind Long-Term Conviction

Rather than panic or chase trends, I’ve anchored my approach in time-tested principles. My portfolio of 36 securities draws inspiration from Warren Buffett’s methodology at Berkshire Hathaway—holding quality businesses for extended periods while resisting the urge to tinker excessively.

The data supports this patience. Bear markets since 1929 have averaged just 9.5 months in duration. This means that overreacting to short-term turbulence often means selling precisely when opportunities emerge. My core holdings—ranging from my top three to top twelve positions—remain largely unchanged, as I believe they can weather an AI-focused market correction without severe damage.

Take Meta Platforms, my fourth-largest holding. Despite integration of AI into its advertising platform, roughly 98% of revenue still flows from Facebook, Instagram, and WhatsApp advertising. An AI bubble wouldn’t fundamentally alter this revenue stream.

Building Ammunition for Market Dislocations

While I’m staying put with quality businesses, I’m actively raising cash by trimming winners and harvesting tax losses on positions that no longer align with my thesis. This mirrors what publicly traded companies do during restructuring—divest non-core assets, retain winners, improve operational efficiency.

My dry powder sits primarily in short-term Treasury ETFs (like SGOV) rather than uninvested cash yielding near-zero. The goal is simple: when panic selling creates price dislocations, I want ammunition ready.

History shows these moments arrive unexpectedly. In April 2025, after Trump announced tariff policies, index volatility created pockets of opportunity. I opened or expanded six positions that day. Yet as markets continued climbing to record highs, such opportunities became increasingly rare—reminding me that this expensive market demands selectivity.

Harvesting Undervalued Situations in an Overpriced Landscape

Finding bargains in a pricey environment requires discipline. Among my recent additions: PubMatic, an adtech company navigating near-term client transitions while maintaining positive operating cash flow and positioning itself for growth in connected TV advertising.

I’ve also been adding to Goodyear Tire & Rubber—a transformation story selling non-core assets, reducing debt, and focusing on higher-margin operations. Growth won’t dazzle, but valuations are attractive for a resilient, profitable cyclical business.

The Dividend Advantage in Uncertain Times

Research from Hartford Funds shows dividend-paying stocks have doubled the returns of non-payers since 1973, while maintaining lower volatility. This makes dividend stocks an elegant hedge against an expensive, potentially disappointing market.

Currently, 18 of my 36 holdings pay dividends. Sirius XM Holdings, for instance, now yields above 5% while supporting that payout through its monopoly status in satellite radio. Future subscription price increases should offset recent subscriber softness.

The Bottom Line

Markets reaching historic valuations demand smarter strategies than dart-throwing at growth stocks. By anchoring to quality, maintaining optionality through cash, staying alert for genuine bargains, and weighting dividend income, investors can prepare their portfolios for a pricey market’s typical challenges ahead.