2025 investing lessons: How overconfidence can sink your portfolio

In 1912, the Titanic set sail with a level of confidence few machines have ever carried. Engineers called it unsinkable. Passengers believed nothing could go wrong. That over-confident belief quietly shaped every poor decision: too few lifeboats, higher speeds, and a casual dismissal of warnings. The ship didn’t sink because the iceberg was too big. It sank because the people steering it were too sure.

That thought stayed with me while reviewing markets, asset class returns and the economy in 2025. India’s long-term story remains strong. Real growth is healthy, and corporate balance sheets are cleaner than most global peers—and at their all time best. Yet, 2025 offered an important reminder: when we become too sure (of above average growth rates), we stop respecting risk (of valuations). And when we stop respecting risk, we experience normal cyclical outcomes via lower returns.

Growth is slowing

India continues to deliver solid real growth. FY25 came in at 6.5%, and FY26 so far has been even better with 8.2% real GDP growth in Q2 and 8.0% for the first half. Let’s dig deeper.

Nominal GDP, the number that feeds company revenues, taxes and earnings, has slowed. It was 9.8% in FY25, and the FY26 Budget assumes 10.1%. This is very different from the 2000s, when nominal growth routinely touched 12–14%. Today’s reality is an 8-10% band. It’s a good number, when we see much lower growth in rest of the world.

Corporate margins are near historic highs, while valuations too are at highs: the Nifty 50 trades around 22.8 times earnings, midcaps around 33 times and smallcaps around 29 times. This means, stocks across market caps are expecting high profit growth rates in companies, of 15-20% vs actuals of less than 10%.

When margins are high and nominal growth slows, forward earnings naturally moderate. And when valuations are stretched, market returns moderate too. These are not opinions; they are simply the mathematics of cycles.

2025—The year of other asset classes

For three years, Indian equities outperformed almost every major asset class and market in the world. Many investors began believing this would always be the case. The certainty of Titanic, the extrapolation of current performance.

However, asset class rotation started since September 2024. In Indian rupees, silver earned 94%, gold gained 70%, global equities via MSCI ACWI delivered 30%, and even long-duration government bonds represented by the Crisil Dynamic Gilt Index earned 7%. In comparison, the Nifty 500 TRI fell 2%, and the Nifty MidSmallCap 400 TRI lost 4%. The most chased space: the small cap index fell 10%. Individual stocks fell a lot more.

Mean reversion remains the market’s way of reminding us that no country or asset class stays at the top forever.

The bigger risk now is that investors simply shift their overconfidence from Indian equities to gold and silver. But one year’s hero rarely becomes the next decade’s hero. Big flames die faster. Chasing the brightest flame of the year often burns portfolios more than it builds them. The 10Y median returns of stocks, India or world, are around 13-14%, silver averages 10%.

So, what should investors do in 2026?

This is how I would explain it even to my 18-year-old son. The first shift is mental: ask “what can go wrong?" before asking “where will I earn more?" Slower nominal growth, peak margins and rich valuations do not call for aggression; they call for discipline. Gold and silver have dazzled last year. However, they are more volatile than stocks and also earn nothing for many years.

Don’t chase past high returns and over-allocate to precious metals when they have earned returns of many years in a single year. Yet, invest in them through a measured 10% of asset allocation. At the same time, stocks can remain in a range, use this phase to increase the number of units.

It is equally important to moderate expectations of returns. If the nominal GDP is growing at 8-10%, the economy will not deliver 15-20% earnings growth every year. Equity returns will likely remain positive over time, but closer to economic reality than the 20% returns of the last decade.

Finally, favour multi-asset investing over chasing the “asset of the year". The last few years belonged to Indian equities. This year, belonged to gold, silver and global equities. Next year is unknowable, which is exactly the point.

The multi-asset category over two decades has earned 11% median rolling return, with just 50% fluctuations of stocks or precious metals. It smoothens the journey, protects during drawdowns and reduces regret. In the next cycle, diversified portfolios will matter more than single-asset bets.

The deeper lesson

The Titanic didn’t sink because the ocean was dangerous. It sank because people believed the ocean wasn’t. Investors make their biggest mistakes not in moments of volatility, but in the moments of certainty.

As we enter 2026, stay invested, stay diversified, stay cautious and stay humble. Confidence is useful. Certainty is dangerous. Big flames die faster. The goal is not to chase the flame. The goal is to stay afloat long enough to reach your destination.

Kalpen Parekh is MD and CEO of DSP Mutual Fund