Thoughts on the 'Magnificent Seven'; Ignore the naysayers and sit tight; BYD car; Scuba videos
1) I've got my eye on the "Magnificent Seven" again...
As you know, these tech giants have been all over the financial media – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Tesla (TSLA), and Nvidia (NVDA).
And just recently, Aswath Damodaran – a professor of corporate finance and valuation at the Stern School of Business at New York University – posted a series on X (formerly known as Twitter) about the Magnificent Seven. As it begins:
If you add three more stocks, you'll see that the 10 largest stocks in the S&P 500 Index account for an all-time high of 32.5% of the entire index's value.
Take a look at this chart from Charlie Bilello's latest Week in Charts post from yesterday:
This struck me as a high number – a mere 10 stocks account for one third of the index's value – so I was surprised to see Bilello's next chart from the same post...
It shows that this level of concentration is, in fact, the second lowest among the 15 largest equity markets in the world:
I wouldn't read too much into this, other than to note that there is nothing about the current level of concentration in the U.S. market that would prevent the Magnificent Seven from continuing to perform well – and becoming an even larger percentage of the index – going forward.
In fact, I think it's likely... and would be led by my three favorites, which I've been bullish on for years (especially Meta at less than $100 per share 16 months ago): Meta, Amazon, and Alphabet.
2) Speaking of Charlie Bilello's latest Week in Charts, he also presents various data points about possible froth in the markets. Here's one:
The S&P 500 has closed higher in 16 out of the last 18 weeks, a stunning advance off of the October correction lows. That hasn't happened since 1971.
Bilello also notes that credit spreads are tight – reflecting the fact that bond investors aren't worried about defaults, even among heavily indebted companies:
Credit markets are reflecting increased optimism as well, with high yield spreads (322 bps) at their tightest levels since January 2022 and investment grade spreads (93 bps) their tightest levels since November 2021. Chatter over a recession and rising defaults that was widespread in 2022 have faded to a whisper.
And he points out that bitcoin has gone "parabolic" again:
Last but not least, crypto sentiment has become ebullient once again. Why? Prices have gone parabolic, with Bitcoin increasing over 58% so far this year, coming within spitting distance of its previous all-time high...
When I was running my hedge funds a decade ago, I would have looked at these factors, concluded that the market was in a bubble and ripe for a crash, and started selling my stocks and adding to my short positions – battening down the hatches for the looming storm.
But here's the thing...
Today, the skies are largely sunny (like they were 10 years ago).
Yes, there are times in which savvy investors should prepare for a crash – I very publicly identified two such times in early 2000 and early 2008 – but I don't think today is one of these times.
The economy is strong, unemployment is low, inflation looks beaten, and valuations – while high – are nowhere near bubble territory.
So my advice is: Ignore the ever-present naysayers... and if you own good stocks (or an index fund), sit tight.
3) Since we would be flying home from Cancun, Mexico early Monday morning, my friends and I had booked a hotel near the airport, hopped on a ferry to Playa del Carmen on Sunday afternoon, and took a taxi into Cancun.
As my friends and I were strolling around a high-end mall, we stopped to check out this nice-looking car that was on display:
We learned from the salesman that it's an electric vehicle ("EV") made by China's BYD (which trades on the Hong Kong Stock Exchange under the ticker 1211.HK and over the counter in the U.S. under the ticker BYDDY). This particular car retails for $50,000.
BYD has just started importing and selling cars in Mexico in the past five months. Here's a Bloomberg video on the company (posted on the Autoblog website): How China's BYD overtook Tesla to become the world's biggest EV maker.
BYD is an incredible story. And you probably won't be surprised to learn that Berkshire Hathaway (BRK-B) was an early investor, buying its initial stake in BYD in 2008 for just $232 million.
In late 2021, Berkshire owned about 21% of the company – worth more than $7 billion at its peak. But since then, Berkshire CEO Warren Buffett has sold 60% of the stake for reasons he and the late Charlie Munger outlined at Berkshire's annual meeting last year:
"We don't want to compete with Elon [Musk] in a lot of things," Buffett said.
Munger added: "We don't want that much failure."
It has been a good sale, as you can see from this five-year stock chart:
4) In yesterday's e-mail, I included a few pictures from my scuba dives in Cozumel, Mexico on Friday.
The photographer who accompanied me also took some amazing videos – here are clips of me swimming alongside a sea turtle, a ray, and a lobster, and here's another one-minute video.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.