I follow about 400 investment thought-leaders on Twitter. One of them, Charlie Billelo from Compound Advisers, made an interesting observation today. Namely, with the great price rally in Amazon (AMZN) today, there are now 4 stocks with a trillion-dollar market capitalization (share price times shares outstanding) and the tickers all spell out MAGA (Microsoft, Amazon, Alphabet (GOOGL), and Apple)!
I have commented before on this idiosyncrasy of a cap-weighted index (such as the S&P 500). From my blog post back in October 2019, I noted that the top 10 stocks in the S&P 500 made up 22.1% of the index; today that percentage has grown to 23.6%. It almost goes without saying that exposure in the S&P 500 is less diversified than otherwise; especially since there is a strong growth style and tech/communication sector bias – and even stronger tech bias if you include Amazon in that category!
As I said in October, and it is worth repeating today, “Though it is nice to capture the “upside” of the large overweight to “growth” stocks, it will not be so nice to experience the downside risk that is sure to follow it someday; growth stocks tend to exhibit more volatility of return than the S&P 500. Best to stay broadly diversified across all market sizes and characteristics to capture the inflection points when they occur.”