Market Concentration, and the Power of 1%

Happy Monday, wealthy people! 

When I was interviewing the top fund managers in the world (in order to decide whether or not to approve their funds for the Morgan Stanley platform), I noticed a trend emerging in 2018.

Sitting cross-legged, laptop open, my hand resting on a cup of cappuccino nearby, I asked the successful US fund manager sitting across from me a simple question: “Why are you underperforming?” His answer became a pattern among all the US fund managers: they gave excuse after excuse as to why they could not beat the market, because the market, as defined by the S&P 500 Index, was getting distorted. The largest stocks became too big a part of the index. “We don’t want to invest so much of our fund only in those largest stocks,” the fund managers told me. (When they didn’t, and those stocks rallied, their funds underperformed the S&P 500 Index).

Back in 2018, it was the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google). Then came the so-called Magnificent 7: the previous stocks minus Netflix, plus Microsoft, NVIDIA and Tesla. These stocks keep getting bigger and bigger, causing chaos in active fund managers’ performance. Read on to see just how distorted the US market has gotten today.

In today’s email:

👉 Stock Market Update - Is the S&P 500 too concentrated?

👉 Wealth Building Strategies - The power of an extra 1%.

👉 Ask Me Anything - What went wrong with my fund purchase?

👉 Sip of Learning - A different take on your 401(k).

Grab your latte and let’s get started!