Watch the special emergency briefing with me, Porter Stansberry, Doc Eifrig, and Matt Weinschenk; Avoid Nvidia; What history says to eventually expect from companies with the biggest market caps

1) After what I'm calling the "flash crash" on Monday, the markets, as I predicted, seem to have stabilized...

But as of yesterday's close, the S&P 500 Index is down more than 8% from the all-time high it reached only a few weeks ago on July 16 (and many individual stocks are down much more) – wiping more than $6 trillion from the market. So it's no surprise that many investors are fearful about the markets.

That's why several of my colleagues decided to put together a special emergency briefing to cover the big questions that are likely on your mind...

Yesterday morning, I joined Stansberry Research founder Porter Stansberry, senior partner Dr. David "Doc" Eifrig, and Director of Research Matt Weinschenk for a no-holds-barred discussion on a wide range of topics about the markets.

We've all been around a while – some of us, a long while! – so this isn't our first market sell-off...

Stansberry Research has helped our members make it through big events like the dot-com crash, 9/11, the global financial crisis, the 2010 flash crash, Brexit in 2016, and the pandemic crash.

In our discussion, we address questions like:

• Is the current pullback a "buy the dip" opportunity... or is it too early?
• With some of the most popular tech names among the biggest losers, are they buys?

For some additional context, I'll note that Porter recently warned in the July 12 edition of our company's free Stansberry Digest e-letter that he thought "the 'top' is in for big-cap tech"... and Doc had a similar message for subscribers of his Income Intelligence newsletter last month when he warned against buying Nvidia (NVDA).

• How stretched are valuations?
• What risks should you watch out for... and how can you best prepare your portfolio for them?
• What's going on with small caps (which had been rallying before the recent volatility)?
• What's the deal with the future of the economy, labor market, U.S. debt, and the Federal Reserve's plans?

Matt kicked off the conversation by reading part of Porter's July 12 Digest essay back to him – where Porter stated his concerns about the market's valuation and that a big drop was inevitable (particularly among the popular tech stocks). As Porter replied:

Stocks are historically overvalued. They are trading at levels we've never seen before at any point in market history on various measures, whether it's the Buffett Indicator, or the Tobin's Q factor, or earnings...

It's not hard to imagine that the market is going to be disappointed sooner or later.

Meanwhile, Doc shares Porter's bearishness.

As for me, I'm concerned about the slowing economy – as I've written in many recent e-mails – but I don't think we're in a bubble. So I'll repeat my conclusion from Tuesday's e-mail:

I of course can't say for sure what the market will do in the coming days and weeks. But I think it will soon recover, as it has done the past 28 times before this current dip... So tune out the short-term gyrations and keep focusing on the long run.

I encourage you to watch the whole free emergency market briefing with Porter, Doc, Matt, and me – check it out here:

2) During our conversation, there was something all four of us agreed on...

The stock of Nvidia, as great of a company as it is, is unlikely to outperform – and could even lose half its value – from here because of its extreme valuation.

As of yesterday's close, it has a $2.4 trillion market cap and trades at 32 times trailing revenue and 61 times trailing earnings.

As I mentioned during our discussion, Nvidia today reminds me of Cisco Systems (CSCO) at the peak of the Internet bubble in 2000...

After briefly becoming the most valuable company in the world in early 2000, when its stock went above $80 per share, Cisco fell by almost 90%. Today, more than two decades later, it still trades around half its all-time high. Take a look at this chart:

In light of this, you might think that the company has performed poorly... but you'd be wrong.

As you can see from this chart of revenue and operating income, Cisco has roughly tripled both since 2000:

In addition, Cisco has bought back nearly half its shares, so its earnings per share are up eightfold.

So how could its stock possibly be down nearly a quarter century later?

In a word: valuation.

At its peak in 2000, it traded at 37 times trailing revenue (just below the ratio of 41 times that Nvidia hit just last month) and 232 times trailing earnings per share.

As of yesterday's close, those numbers are 3.5 times and 15.2 times, respectively.

So now the math makes sense... earnings per share are up 8 times, but the price-to-earnings multiple is down by 15 times, so that translates into a stock down by approximately half.

It would be hard to find a better case study of the perils of overpaying for a stock, even when the underlying company grows strongly for many years.

3) In light of what happened to Cisco after it became the most valuable company in the world and what may be happening to Nvidia after it also reached this pinnacle on June 18 – it's currently third largest in the U.S. market, behind Apple (AAPL) and Microsoft (MSFT) – I was particularly interested to read this analysis by Bridgewater Associates from that day: The Life Cycle of Market Champions.

In it, the report's authors looked at the 10 U.S. companies with the largest market caps for each decade, starting with 1900 through 2020 – a total of 13 cohorts – and then added the 2024 group as well.

This chart from the report shows the share of total U.S. market cap (which, to be clear, is different than these stocks' prices) for each cohort (the light gray lines), the average (the dark gray line), and the trajectory of the current top 10 (the blue line):

You can see that the current favorites recently skyrocketed up to an almost unprecedented 30% of total market cap. That's well above the average of 20%, which doesn't bode well for their future outperformance, if history is any guide.

That said, this table from the report shows that the 2010 group is one of only three cohorts that increased its market share over the subsequent decade:

If you look at those companies, you can see why... while seven of the 10 have underperformed the S&P 500, that has been more than offset by the three massive winners (in order) – Apple, Microsoft, and Alphabet (GOOGL):

Another important thing to note is that the 2010 top 10 only accounted for about 12% of the total market cap, whereas the current cohort's share of market cap had recently hit nearly 30%:

The massive share these companies represent of the market's total value means they have much less upside and a lot more downside.

So in today's environment, that's why blindly piling money into the largest companies isn't the best approach for finding the market's next big winners...

But as it happens, right now the doors are still open to try out Stansberry's biggest investing breakthrough in 25 years. In short, it's a new way to see which of 4,817 stocks could double your money – by measuring the most likely outcome before you get in.

We closed the doors on this special opportunity six months ago, but they're open again only until midnight tonight. Amid the recent market shake-up, I urge you to check this breakthrough out for yourself – get all the details here.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.