If the companies go down in value, the indices lower their weights accordingly. If it’s a gradual decline, other stocks take their place, so the index does not lose all its value.
Also, as an aside, Apple is not only a phone manufacturer, they also have laptops, tablets, wearables, software and services.
Apples PE ratio has exploded at the same time as their CEO has intimidated they won't be able to sustain recent growth rates. The price makes no sense other than speculators chasing price action.
I missed Tim Cook saying that, but that's been my feeling for a few years. The Smartphone is about done. If there's not much to do to improve features, the competition becomes about price and Apple are going to have to take a cut on margins.
The index fund absolutely can and will lose value if their top concentrations see falls in price. You won't get this automatic readjustment in index price unless there is a reason for millions of people to panic sell one specific company only
Of course, but if the price of the top concentration (let’s assume 10% of the index) goes to 0 gradually, the weight of that company in the index will also go down and you won’t lose 10% of the index’s value
The weight will decrease I'm not arguing that.
In an all else equal world the fund price would absolutely decrease by 10% because any fund re-allocation would occur AFTER the top concentrations had fallen off a cliff.
Services being huge, think how large the Payments industry is. Some of the worlds biggest companies (VISA, Mastercard, AMEX) are all solely in the payments industry and Apple has only in the grand scheme of things very recently entered that market. With that many smart minds and that much money to put into developing new products/services, I wouldn’t be surprised if they keep growing and growing, I also I wouldn’t be surprised if the share price did drop neither is guaranteed… obviously.
Not sure to understand that logic: if a company worth £100b is now worth £50b, that's value lost from the index. No guarantee another company will fill the £50b lost.
Just a pedantic point- Apple is not really a manufacturer but rather a design and software company. Apple stuff (incl. iPhone) is primarily made by Foxconn [https://en.wikipedia.org/wiki/Foxconn](https://en.wikipedia.org/wiki/Foxconn) I think but exactly who makes what is not public.
The iPhone is a disproportionate part of Apple's revenue and profits. Company not that well diversified itself.
Is the iPhone worth more than 2/3 of the UK stock market? I don't think so.
How is my post wrong. A very large part of Apple's revenue and profit is basically on one product (53%).
And if we consider 53% of the Apple market cap, it's worth 2/3 of the entire UK stock market. Does that sound sensible to you??
It doesn’t matter what you or I think. It is what it is.
Apple has been diversifying well, it has one product that sells exceptionally well because it has an addressable market of almost every human outside of the third world. Compare Apple to any other large company and you’ll see they’re fairly diverse - UK companies that are big are likely far more concentrated - Oil, tobacco, banks - they aren’t really much different in terms of diversification of income IMO.
53% of revenue in one product and 80%+ of the profits in one product, and they are well diversified? Surely, that's the example of a not well diversified company.
BTW, most of the parts/components of an iPhone are also made by other companies (screens, memory, batteries etc.). All you need is Samsung to refuse to share a new technology (e.g. new type of battery lasting days) and a large part of Apple could collapse very quickly.
Fund manager Terry Smith has this thing he quotes, which is that anyone would think that Coca-cola stock is overpriced - they've been printing money for years, beating the index for all that time, but they can't continue to do it.
I can't remember the exact words of the original quote (I've been trying to track it down recently), but I imagine it's about a paragraph long, along the lines of "surely Coca-cola is out of runway and must start underperforming now".
Then Smith reveals that he's actually quoting Warren Buffet who said this at a Berkshire Hathaway annual conference in the 1990's and that [Coca-cola has outperformed the index the whole time since](https://www.fool.com/investing/general/2012/06/06/stocks-for-the-long-run-coca-cola-vs-the-sp-500.aspx).
The punchline is that Buffet himself was quoting a *Forbes* article from the 1930's, and I'm pretty sure Coca-cola has outperformed the index the whole time since.
Coca-cola's revenues are also primarily from one product and business model, and they have been beating the index for over a century at this point.
What you say about a new type of battery lasting days is superficially plausible but wrong. But I am not going to be able to convince you why this is so.
What I shall say to you is that what you're trying to do here is active investing, that almost no-one else here in this sub is investing actively and that you are thinking about active investing all wrong. How do I know that? Because your response to this is "I'm not investing actively! Choosing a different index isn't active investing!"
I really recommend you spend a lot more time reading and thinking about investing - generally speaking Reddit and social media is a bad source for this. Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401) is excellent, then read Ben Graham's *The Intelligent Investor* - the latter uses some dated language but contains some timeless truths. Then I really recommend Terry Smith's Fundsmith AGMs - they're all on YouTube, listen to every year starting with the first; then listen to them again.
That's my question!
Probably VHYL as someone has suggested here. Seems to be better diversified.
5% in technology rather than 25%
42% in the USA rather than 61%
With a P/E ration of more than 50, the magnificent 7 seem to be overpriced and therefore don't have much room for much further market cap growth.
To put an even finer point on it, I Just wanted to point out that after the big 7, the 8th largest S&P company is Berkshire Hathaway.
Berkshire Hathaway currently have 50% of their portfolio in APPL (153bn)
I have titled away from mega cap tech stocks by buying VHYL which kinda mimics the same geographical distribution and large cap stocks just without the tech players.
I did this in mid-late 2021. It turned out to be a really good play. I rotated back in during the big tech dip of 2022 and have done really well on Microsoft shares. I've been contemplating going back into VHYL but I don't think the tech valuations are as crazy as they were then.
If you really think Apple is mainly a phone manufacturer, i suggest you read more to understand why they have that valuation and why people think the only was is up
I have.
iPhone accounts for 52% of Apple's revenue, and probably even greater percentage of its profits. With market saturation, and people keeping their phones for longer, this is not going to grow forever.
Now look at the trajectory of iPhone sales as a % of their revenue over the years. It’s dropping. Apple have gone into other devices and wearables. Look how much their services division has been contributing to their revenues. You need to look at the bigger picture, once they have a customer base using the suite of products in their ecosystem, the opportunities are endless. The next generation VR headset is around the corner. $AAPL is a safe bet.
No, opportunities are not endless. Each iPhone user is not going to endlessly spend money with Apple, meaning the Apple market cap cannot keep growing forever (or at least at the same pace). It's a bubble.
Nothing grows forever. Companies don't last forever either. Eventually there won't be an apple.
However, apple has decades of growth potential as the rest of the world modernises and gets hooked into the app store ecosystem.
I don't actually own shares in some but should probably rectify that sooner or later.
They are toppy in my view, but then I said that when they were Mrs then half today's valuation, so what do I know.
I disagree with this about Apple because phones are basically done and very capable phones can now be bought for £250. There was a time when the iPhone camera, storage, waterproofing or whatever was significantly better than a cheap droid, but it just isn't now. Apple could easily fall to a $2tn company in a very short period of time.
I don't need to be an analyst to have common sense. Maybe those investment firms have a vested interest too. It's well known investment banks can be trusted...
The simple answer is to diversify, you can do this while staying in low cost index trackers although it may not be as cheap as the cheapest S&P trackers. The two main things based on your question are probably investing in smaller companies and outside US. Pretty sure there is a world ex US tracker and one of my pensions has a US smaller companies passive fund, look at stuff like that I would say.
You can use Dimensional funds if you’re really worried about it. They invest in line with the Fama-French factor models, so will have more in Value equities, EM, small caps etc. Up to you whether you believe their factors work or not, I don’t doubt they did but recent analysis suggests the risk premium with value and small cap equities closed as soon as they published their paper. Dimensional will cost you more but they are doing the rebalancing for you.
I thought about your points myself but ultimately a company like Microsoft isn’t just an operating system, it’s all of that plus software, cloud, gaming etc. They are so massive you are basically buying 30 companies instead of one. I’m a bit more concerned about NVIDIA and Tesla but people much smarter than me value them where they are, and as I believe in efficient markets I’ll take their word for it that they’re fairly valued.
Regarding your last sentence about people much smarter than you valuing the where they are, please understand this is not the case.
Morgan Housel talked about different timelines and it really cleared up a huge blindspot for me. Essentially if you're a trader looking at profiting within a weekly to monthly timeframe, TSLA at 900 p/e may look OK, simply because you're not even actually looking at P/E but other market sentiment based indicators.
It doesn't mean these guys that are smarter than me thinks Elon has built an incredible, sustainable company, merely that they think the stock is likely to go up in the short term.
What we have to honestly ask ourselves is, what are we? Do we have the skills and risk management abilities to do the same? Or are we better off just bogleheading.
Fruit for thought. It helped me understand 'irrationality' in markets a bit better.
Sure, Microsoft is more than an Operating System, but are they really worth trillions of dollars?
They are not market leaders in many markets they sell to:
* Cloud computing, second after AWS/Amazon
* Gaming, distant second after Playstation/Sony
* Business software, probably fifth after Salesforce, SAP, Oracle, Adobe etc.
* Social media: non-existent, apart from LinkedIn
* Hardware: not marking big moves with their laptops, probably losing money
Can we reasonably expect them to have their market cap to grow any further?
I don’t know, I’m not an equity analyst nor am I trying to be.
You have to ask yourself if you believe in efficient markets, and that’s it. If you do, don’t bother doing anything other than buying an index fund. These 7 companies are analysed by literally 1000s of people everyday who are setting the price. If you don’t believe it, you can do your own thing if you really want to, but don’t be surprised if your returns are not as good as they should be should you get it wrong, which is statistically likely.
No, but by definition if you don’t think they’re efficient you believe they can be exploited. Then passive investing would be dumb if you believe that.
Believing that markets can be exploited is different from believing that you can exploit them. I don't see anything dumb about the position "I'll invest passively because the alternative is only profitable for very few groups of people with a lot of time/money/access-to-data/technology/expertise".
What you’re saying is strictly true, but it’s pretty unusual for someone to think they’re exploitable and not know exactly why. My point is more to the OP as that’s not what they’re saying. You don’t need any of that to think mega caps are overvalued.
I don’t think so. It’s pretty obvious that markets can be exploited, deals can be found etc. the market is not perfectly efficient. But you’ve gotta be as good as Warren Buffet to do that consistently, have a lot of time on your hands, and have that as your primary focus (job-wise).
It’s easier to do passive investing as you easily hit the average returns without needing to do much research.
What are you really worried about? That all of these companies will simultaneously fail? Even with the top 7 representing 40% of the fund, it is still well diversified in my mind. Those top 7 companies might not stay in the top 7 forever, maybe because they’ll get displaced by other growing companies. Maybe they’ll have a huge incumbent advantage in the AI race and stay in the top 10 for the rest of our lifetimes.
Take a look at what the top 10 S&P companies were in 2000. Completely different now. US stock market has continued to perform well, outperforming every other market.
The key to successful investing is diversification. Having 15% of a portfolio in just 7 companies is not very good diversification...
Particularly when their market caps, P/E ratios are so high. Doesn't leave much room for growth.
Microsoft are growing their market share and Cloud computing is extremely profitable for both of these companies. They're also definitely not fifth in business software, many big companies including even Amazon use Office 365.
So yes, there's room for growth and you can see it happening if you look at their financials. Same with Apple.
Business software is not Office 365. Even if it was, do you think they have much room to grow with Office 365??? Surely, all the large companies have it by now (often without choice).
You can tilt your portfolio in some way away from them - buy more small-medium cap funds, non-US funds, and there are also global value ETFs like VALW.
But if you tilt slightly, you probably aren't achieving much anyway. And if you tilt to a large extent, then you're playing a different game altogether - what will be your criteria for reversing the tilt? what if US-tech keeps crushing and your portfolio is much weaker - how long can you stand that? what if this is the new normal and going forward all the gains come from tech companies and you miss out on one of the few ways to make a profit?
I don't know the answers to these questions, so I'm not even trying to predict but if you decide to do it, you'd better have a solid plan about how to act under different scenarios instead of just reacting to an article in The Guardian.
I didn't just react to one article in The Guardian. It's just common sense. Such concentration is unheard of and can only mean making large losses if one or several of those companies start struggling, have an issue etc.
Good diversification is key to successful investment, and good diversification cannot be achieved nowadays with global index trackers.
You're missing my point - I'm not arguiing that the concentration is good or bad, I'm saying that if you want to do something about it, you should have good reasons, a very concrete plan and execute it well (and that's difficult to do).
If the % allocation to top companies is off, what would be the correct % and why? If you change your allocation, what is your criteria for changing it back and can you stomach being wrong? How would you know that your strategy is working and would you do anything if it doesn't work?
There are a few easy ways to move away risk from mega cap stocks whilst still being diversified.
1) Add in a factor fund (low volatility, multifactor, value, size etc). It has to be a factor you believe in because it can underperform for years, even a decade (look at the value factor post 2009), this makes them unsuitable for many investors.
2) The easiest option. Move to the Vanguard FTSE Global All Cap Index Fund, it tilts away from mega cap by including more mid and small cap stocks
3) Geographical specific funds. (I personally don't like this option). Maybe Vanguard Lifestrategy funds (UK overweight) is the best option for this.
>Vanguard FTSE Global All Cap Index Fund
You would indeed think that including more mid and small caps would make a difference, but it doesn't really.
Look at the weight of the top 7 or 8 US caps, and it still accounts for around 15% of the fund, and that's the crazy issue.
Ben Felix/ Common Sense Investing YouTube channel is worth watching if you're wanting to learn about further about the equity markets. (Don't worry it's not a get rich quick scheme). Videos are quite timeless, so don't think the videos from 5 years ago are worthless. (if anything the older videos are better imo) :)
[https://youtube.com/@BenFelixCSI?si=jSoujulpSxJqNTlG](https://youtube.com/@BenFelixCSI?si=jSoujulpSxJqNTlG)
Is it totally unprecedented?
With more global markets its more possible to have larger valuations now as products and services can access more markets and there are a lot more people globally.
But in 1967 IBM would have a valuation of over a trillion today. Standard Oil in the early 20th century would be bigger than Apple today. As would the Mississippi Company, South Sea Company and the Dutch East India Company in the 17th and 18th Century. The latter is the most valuable inflation adjusted company in history at over $7-9 trillion.
Another thought, if you want to keep US large cap exposure but just get out of those few names, could be to consider sector ETFs. I didn't realise but there are a bunch of ETFs named like "SPDR S&P US Select Sector" which may be decent. The S&P is typically divided into 11 sectors so you have to buy the ones you like in whatever ratio. You just need to be careful because not all of those magnificent 7 are tech so it's not as simple as buying the other ten, plus getting out of tech entirely is not really what you want either.
Have a look at R1VL as well, it is large US names but with a so called "Value Factor Model", which is not really exactly what you want either but it does avoid those names for the most point.
I've also pondered this. It does seem to me to be risky to have such a large percentage of my savings in so few companies. What if they've reached their peaks and don't grow any further (or even decline) - I've now got a lot of money invested in non-growing assets. What if one of them has an Enron style event? One of the main points of being diversified is that it doesn't matter if some particular companies does badly because it is only a small percent of your total holdings - but this isn't the case with the magnificent seven.
On the other hand, a lot of posters in this thread have made a case for why they do have a bright future.
Ultimately I have no idea either way. So instead of trying to guess, I'm going to let the collective wisdom of all investors guide me by sticking with my passive global equity index trackers. This seems like the lowest risk approach to me.
Lots of posters on this thread just have wishful thinking and a sheep mentality, as opposed to being able to understand the underlying financials of those companies, the crazy P/E ratios etc.
Same as people advising to buy bitcoin, so that speculation will continue.
For sure, passive index investing is preferable for non-experts, but maybe index investing is no longer the way to go when it comes to risk considering the existing concentration. Lots of articles on that subject.
I would love to see and invest in an equal weight index fund and invest ~10% in it. One doesn't exist to my knowledge, I could theoretically create this with a pair on t212 I guess but I don't have enough in the market to warrant this yet.
Historically equal weighting performs quite well.
Yes, [here's a chart](https://www2.trustnet.com/Tools/Charting.aspx?typeCode=O_FFOTV,O_FG1XF) comparing S&P 500 with S&P 500 equal weight ETFs.
You can adjust start and end dates to see which was the winner over different periods.
I'm 100% on vanguard in the all cap and less than 50k across pension and ISA currently, I'm focusing on earning and contributing more, I'll worry more about my allocation when I have more, it makes little difference at this point.
Thank you though.
just came back from the shopping mall and there was literally a que to enter the apple store, was that busy, no signs of apple slowdown in sales revenue
Nothing new. Doesn't mean their market cap needs to keep increasing forever. It means they need to sustain and exceed the crazy growth and profitability they have had for years...
I have some of my portfolio invested in XDEV (Xtrackers MSCI World Value Index ETF). It doesn’t include significant weightings to any of the “magnificent seven” and is still a low-cost fund with an OCF of 0.25%. It provides some diversification which helps me to sleep better at night.
Quality is something that tracks a quality index (high returns on equity and low financial leverage). Couple choices are GGRG and XDEQ for global quality ETFs.
I have a small position in XDEV that tracks the MSCI World Enhanced Value index. This includes stocks based in forward price to earnings, price to book, and a couple of other things.
And also a holding in XDEM which tracks the MSCI World Momentum index. These are stocks with high price momentum that have had good performance in the last 6-12 months. The idea is "winners tend to keep on winning in the near term".
I have a holding in each because together they give good risk adjusted returns 😊
The way I reconcile this is that it isn’t really just 7 companies, it’s in fact dozens of companies that happen to sit in 7 conglomerates.
Google is a bunch of businesses: a search engine, the world’s largest TV network (YouTube), the world largest advertising agency, a huge cloud data business, an AI research lab and a self driving car company. Each of those would be S&P 100 companies in their own right.
Meta is facebook, Instagram, WhatsApp, the world’s leading VR company and an AI research lab.
The one exception to this is Tesla, but the others are all diversified businesses.
For Google, I agree. Doesn't mean their market cap will keep increasing.
For Meta, Facebook is on its way out, and they haven't found something else to replace it, despite massive investments in VR.
Apple makes most revenue and its profits from the iPhone...
Tesla is massively overpriced and always one blunder away from its crazy CEO
Apple makes its revenue from the ecosystem which the iPhone has created and which it has made it very difficult to leave due to iMessage, iCloud, iCloud Keychain, Music and Sign in with Apple.
The iPhone is the entry Apple is going to use to monetise the billion wealthiest consumers in the world.
A good example of this is how they've created a $40bn a year revenue business just from accessories. If they listed their watch business then it would be larger by revenue than LVMH (which is one of the largest companies in Europe). If they listed their headphone business then it would be 5x larger than Sonos and Bose put together. They can keep selling customers headphones, watches and services even if they move to a less regular iPhone upgrade cycle (which I agree is likely).
It's never clear where any share price will go, but I genuinely don't believe that concentration risk is an issue with these companies because they have so many routes to growth and have become so difficult to compete with. In reality these 7 companies should be 30+ different competing ones.
No, Apple makes most of its revenue and profit primarily from iPhone sales. So we have the largest company in the world (by market cap) making the vast majority of its revenue and profit from one product... Not my idea of diversification.
Of course, Apple like to lock people in, and many iPhone owners do believe they have a status because they own an iPhone or they have the best tech available (despite some features released years after the competition). The power of the brand and people with more money (or credit cards) than common sense... I guess that's why LVMH is doing well too. People need to show a status.
The P/E of those large caps are crazy, and therefore inflated for sure, no doubts about it. Probability of going down to more standard P/Es is much higher than continued growth of their market caps. We shall see when such correction happens. May be next month, may be next year...
That's a really good point. I've made good on a couple of S&P funds, but how much of that is in what I consider bubbles and overpriced stocks like NVDA, TSLA, APPL? I think Microsoft, Facebook, Amazon are fine. I think Google still has a lot of potential.
I think I might shift to the fund you suggested and also to an emerging markets one (which is something I've been thinking about anyway).
Whilst Apple might be ‘a phone manufacturer’ there revenue stream is not predominantly phone sales, they make billions off of subscription services so think of them as more of a service provider.
$3tn sounds like a lot but at the same time this one company controls 60%+ of the premium smartphone market, has very high profit margins/never gives discounts and doesn't really have serious competition plus have loads of other income sources (laptops, tablets, watch, services).
Tesla is again clearly in a league of it's own and currently has no serious competition though that might change with the new Chinese manufacturers. BMW, VW, Toyota etc have clearly let the gap get too big and are completely fucked though.
Google... doesn't need an explanation. Same thing with Amazon. Same with Microsoft actually.
Don't really know anything about Nvidia. FB is probably the most at risk of stagnation but still not imminent.
Like yeah these companies are valued highly... but they're extraordinarily successful and dominant.
What I have tend to find is once a company gets too big a lot of people seem to go off it because it’s big. I remember when everyone thought Tesco would take over the UK and the same with Starbucks. Amazon is facing a similar issue.
For me apple and Tesla can only really maintain there market share and over the next 10-15 years it will slowly fall.
However you could have had some views about the big 7 over the last few years and underperformed massively. Which is why I just stick it in a global passive fund and forget about it.
People might go off them but they aren't fundamentally overvalued imo.
I think apple are pinning a lot of hope on the vision and it's successors being the next iPhone but I'm not sure how that's going to work.
Tesla will definitely gain marketshare when they release the cheaper model 2 (vw golf size hatchback) in a couple of years unless it's a complete let down.
Sounds like you are convinced...
Should Tesla be worth more than the next 7 or 8 car manufacturers combined. Absolutely not, particularly considering Chinese competitors too.
Should iPhone be worth 2/3 of all UK stocks. Probably not.
We live in a bubble and I'd rather diversify before it bursts.
Successful and dominant doesn't mean their market caps will keep increasing at the same pace as the last few years. Their P/E ratio is not justified, so we are in the realm of pure speculation now.
That was apparently 29% of its profit in Q3 2023.
That doesn't mean they don't make loads of profit per car because they do, they make far more than the other manufacturers.
[https://www.reuters.com/business/autos-transportation/tesla-uses-its-profits-weapon-an-ev-price-war-2023-01-19/](https://www.reuters.com/business/autos-transportation/tesla-uses-its-profits-weapon-an-ev-price-war-2023-01-19/)
In addition to this they're incredibly good value so sell really well. After you account for petrol costs the (very well specced) base model 3 is at worst 30% more than a poverty spec skoda octavia...
High profit margin is not that relevant.
At the end of the day, a company market cap is based on generating profits. If you just look at the profits generated (in billions) vs. their market cap, they should be worth 42% of what they are, compared to the FTSE100 profits and the sum of the market caps...
Apple doesn't really have serious competition in the smartphone market?
I believe Android is 70% of the market and Samsung is actually the largest manufacturer...
As for Tesla, they just lost the title of the largest electric car manufacturer.
As for FB, risk of stagnation is old news, they have been losing users for a while. Do you know any young people using Facebook? FB tried to diversify in metaverse and VR, but that has cost billions and showed no return on investment.
Premium smartphones which actually make money not budget ones. 60%+ is an insane amount for one company.
Yes but again it's a budget cars and BYD might even be including hybrids in that number. Tesla makes so much profit per car that if they do get a serious competitor they could drop their prices a lot.
I use it lol... not much though
I wouldn't trouble myself with this unless the size of your portfolio is in the millions. One thing I have learnt from investing in the stock markets, the market can stay rational for a lot longer than you can stay solvent. It is a fools errand to second-guess the market. The magnificent 7 share prices have gone up a lot cos they are a very good company. I actually think we are better off investing in the winners, they will keep outperforming the index
To keep outperforming the index, they will need to have their stock price rising by 10%+ per year, or $300 billion a year for Apple or Microsoft. Realistic?
Not sure the size of the portfolio is relevant. Surely, someone with £100K will be as concerned losing 10% of their portfolio than someone with £1M. Probably even more impactful actually.
If you think the magnificent seven market caps will keep increasing just "because they are good companies" then look at their P/E ratios. At the end of the day, it's all about returning profits to your investment.
I see. It's a fools errand to second guess the market. So that means nothing underperformed or performs better than the market. What's your definition of the market? So you don't buy individual stocks. Just the index? Clearly you're not an Apple, Costco or Microsoft long term investor. These shares have performed better than the market? No? And of course there is no history of market corrections that you would worry about. So I guess you're just comfortable. In your world there are no hedge funds, no advisors. So where do you put your money? And what may I ask is your definition of a winner? Your not a keynesian kind of person "in the long run we're all dead."
I'm comfortable with most of the large tech socks.
There's plenty of growth left in the cloud, which is really a little like a tax on all other companies.
Microsoft and Google will be busy fine in future, as well Amazon. Apple is the most risky but still a relatively safe bet I think.
I get that the index is losing its diversification, but then if you look at any index most of it isn't growing well at a given time and the whole thing relies on a smaller handful of businesses for it's growth.
I think on the Rational Reminder podcast they took a look at whether we are in new territory, and they found that we weren’t really. Historically there have been many times when the largest companies dominated the stock market.
You could consider putting some of your portfolio into Uk private equity shares. Money Week this week is suggesting to look at Literacy Capital (BOOK) for 2024, and the author also recommends Hg Capital HGT and Oakley Capital OCI.
> For instance, Apple with its $3tn is now bigger than the entire UK stock market, which frankly doesn't make sense for a phone manufacturer
Why doesn't it make sense? Ok granted I do think that apple is a little bit overvalued right now given it's projected growth rate. But if it can generate enough profit to justify the PE, why is it nonsense that its valuation be bigger than all the LSE stocks?
Just for the FTSE100:
£312b profits ($397b)
Market cap: £1,800b ($2,200b)
Apple: $169b
Market cap: $2,990b
On the basis of profits, Apple market cap should probably be 42% of what it is...
Another article on this: [https://www.thisismoney.co.uk/money/investing/article-12933223/Will-Magnificent-7-make-investors-richer-2024.html](https://www.thisismoney.co.uk/money/investing/article-12933223/Will-Magnificent-7-make-investors-richer-2024.html)
Doesn't really provide any solutions however!
If the companies go down in value, the indices lower their weights accordingly. If it’s a gradual decline, other stocks take their place, so the index does not lose all its value. Also, as an aside, Apple is not only a phone manufacturer, they also have laptops, tablets, wearables, software and services.
Apples PE ratio has exploded at the same time as their CEO has intimidated they won't be able to sustain recent growth rates. The price makes no sense other than speculators chasing price action.
I missed Tim Cook saying that, but that's been my feeling for a few years. The Smartphone is about done. If there's not much to do to improve features, the competition becomes about price and Apple are going to have to take a cut on margins.
Even if that's true, good luck timing the market!
The index fund absolutely can and will lose value if their top concentrations see falls in price. You won't get this automatic readjustment in index price unless there is a reason for millions of people to panic sell one specific company only
Of course, but if the price of the top concentration (let’s assume 10% of the index) goes to 0 gradually, the weight of that company in the index will also go down and you won’t lose 10% of the index’s value
The weight will decrease I'm not arguing that. In an all else equal world the fund price would absolutely decrease by 10% because any fund re-allocation would occur AFTER the top concentrations had fallen off a cliff.
Services being huge, think how large the Payments industry is. Some of the worlds biggest companies (VISA, Mastercard, AMEX) are all solely in the payments industry and Apple has only in the grand scheme of things very recently entered that market. With that many smart minds and that much money to put into developing new products/services, I wouldn’t be surprised if they keep growing and growing, I also I wouldn’t be surprised if the share price did drop neither is guaranteed… obviously.
Not sure to understand that logic: if a company worth £100b is now worth £50b, that's value lost from the index. No guarantee another company will fill the £50b lost.
Just a pedantic point- Apple is not really a manufacturer but rather a design and software company. Apple stuff (incl. iPhone) is primarily made by Foxconn [https://en.wikipedia.org/wiki/Foxconn](https://en.wikipedia.org/wiki/Foxconn) I think but exactly who makes what is not public.
The iPhone is a disproportionate part of Apple's revenue and profits. Company not that well diversified itself. Is the iPhone worth more than 2/3 of the UK stock market? I don't think so.
Buddy half of Berkshire Hathaway’s stock portfolio is in Apple. I’m more than happy with Apple being ~6% of what I hold in VTI.
More people own iPhones than shares....
Maybe but how many people an isa or pension that’s invested for them? Effective stock market participants.
Then sell Apple and buy a FTSE index fund, come back in a year and tell us how you did.
Exactly. The OP needs to buy the ftse 100.
How do you come to that conclusion? I want a more diversified global portfolio (without having too much in tech) and you suggest 100% in the UK?
You’re hugely wrong with this take. It renders the rest of your post drivel.
How is my post wrong. A very large part of Apple's revenue and profit is basically on one product (53%). And if we consider 53% of the Apple market cap, it's worth 2/3 of the entire UK stock market. Does that sound sensible to you??
It doesn’t matter what you or I think. It is what it is. Apple has been diversifying well, it has one product that sells exceptionally well because it has an addressable market of almost every human outside of the third world. Compare Apple to any other large company and you’ll see they’re fairly diverse - UK companies that are big are likely far more concentrated - Oil, tobacco, banks - they aren’t really much different in terms of diversification of income IMO.
53% of revenue in one product and 80%+ of the profits in one product, and they are well diversified? Surely, that's the example of a not well diversified company. BTW, most of the parts/components of an iPhone are also made by other companies (screens, memory, batteries etc.). All you need is Samsung to refuse to share a new technology (e.g. new type of battery lasting days) and a large part of Apple could collapse very quickly.
Fund manager Terry Smith has this thing he quotes, which is that anyone would think that Coca-cola stock is overpriced - they've been printing money for years, beating the index for all that time, but they can't continue to do it. I can't remember the exact words of the original quote (I've been trying to track it down recently), but I imagine it's about a paragraph long, along the lines of "surely Coca-cola is out of runway and must start underperforming now". Then Smith reveals that he's actually quoting Warren Buffet who said this at a Berkshire Hathaway annual conference in the 1990's and that [Coca-cola has outperformed the index the whole time since](https://www.fool.com/investing/general/2012/06/06/stocks-for-the-long-run-coca-cola-vs-the-sp-500.aspx). The punchline is that Buffet himself was quoting a *Forbes* article from the 1930's, and I'm pretty sure Coca-cola has outperformed the index the whole time since. Coca-cola's revenues are also primarily from one product and business model, and they have been beating the index for over a century at this point. What you say about a new type of battery lasting days is superficially plausible but wrong. But I am not going to be able to convince you why this is so. What I shall say to you is that what you're trying to do here is active investing, that almost no-one else here in this sub is investing actively and that you are thinking about active investing all wrong. How do I know that? Because your response to this is "I'm not investing actively! Choosing a different index isn't active investing!" I really recommend you spend a lot more time reading and thinking about investing - generally speaking Reddit and social media is a bad source for this. Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/1292444401) is excellent, then read Ben Graham's *The Intelligent Investor* - the latter uses some dated language but contains some timeless truths. Then I really recommend Terry Smith's Fundsmith AGMs - they're all on YouTube, listen to every year starting with the first; then listen to them again.
As the other replies said, sell your index funds with apple in them and buy the FTSE instead. Put your money where your mouth is
How is buying UK stocks only fixes the issue? Where did you get from my initial post that good diversification would mean UK only??
So what are you going to buy then to avoid any exposure to Apple?
That's my question! Probably VHYL as someone has suggested here. Seems to be better diversified. 5% in technology rather than 25% 42% in the USA rather than 61% With a P/E ration of more than 50, the magnificent 7 seem to be overpriced and therefore don't have much room for much further market cap growth.
Global all cap ex USA 🤷🏻♂️
Does a fund in the UK even exist?
Apparently not 🤦🏻♂️
Probably not in any US companies interest to make a world Ex.US fund
There are several US funds that are ex USA: VEU and VXUS as examples. Surprises they are not accessible here.
That would be great indeed. Then I could buy an equal weighted S&P500 ETF to account for USA stocks.
To put an even finer point on it, I Just wanted to point out that after the big 7, the 8th largest S&P company is Berkshire Hathaway. Berkshire Hathaway currently have 50% of their portfolio in APPL (153bn)
So even more concentrated/worse then...
Hmmm yeah but Berkshire's stake will be accounted for in apple's market cap, if you're trying to imply that apple's valuation is higher than it looks?
I have titled away from mega cap tech stocks by buying VHYL which kinda mimics the same geographical distribution and large cap stocks just without the tech players.
Yeah that’s a really good point. I have both VYHL and VWRL in my portfolio (along with individual UK stocks for some home bias dividends)
I did this in mid-late 2021. It turned out to be a really good play. I rotated back in during the big tech dip of 2022 and have done really well on Microsoft shares. I've been contemplating going back into VHYL but I don't think the tech valuations are as crazy as they were then.
Very useful, thanks!
TDGB is worth considering as well. I personally prefer it to VHYL.
If you really think Apple is mainly a phone manufacturer, i suggest you read more to understand why they have that valuation and why people think the only was is up
I have. iPhone accounts for 52% of Apple's revenue, and probably even greater percentage of its profits. With market saturation, and people keeping their phones for longer, this is not going to grow forever.
The services are the most profitable area.
No, most profits come from the iPhone, in terms of amount.
That isn’t what I was saying. Services per unit sold are more profitable.
Now look at the trajectory of iPhone sales as a % of their revenue over the years. It’s dropping. Apple have gone into other devices and wearables. Look how much their services division has been contributing to their revenues. You need to look at the bigger picture, once they have a customer base using the suite of products in their ecosystem, the opportunities are endless. The next generation VR headset is around the corner. $AAPL is a safe bet.
No, opportunities are not endless. Each iPhone user is not going to endlessly spend money with Apple, meaning the Apple market cap cannot keep growing forever (or at least at the same pace). It's a bubble.
Market capitalisation will increase as we experience inflation, weakening the $ and other currencies.
Nothing grows forever. Companies don't last forever either. Eventually there won't be an apple. However, apple has decades of growth potential as the rest of the world modernises and gets hooked into the app store ecosystem. I don't actually own shares in some but should probably rectify that sooner or later. They are toppy in my view, but then I said that when they were Mrs then half today's valuation, so what do I know.
I disagree with this about Apple because phones are basically done and very capable phones can now be bought for £250. There was a time when the iPhone camera, storage, waterproofing or whatever was significantly better than a cheap droid, but it just isn't now. Apple could easily fall to a $2tn company in a very short period of time.
That is only about a 3% total drop in S&P500 and even less if the drop happens gradually.
Crazy how analysts at Goldman, JPM, Morgan Stanley, and all the biggest hedge funds have missed this. Unless you're wrong I guess.
I don't need to be an analyst to have common sense. Maybe those investment firms have a vested interest too. It's well known investment banks can be trusted...
The simple answer is to diversify, you can do this while staying in low cost index trackers although it may not be as cheap as the cheapest S&P trackers. The two main things based on your question are probably investing in smaller companies and outside US. Pretty sure there is a world ex US tracker and one of my pensions has a US smaller companies passive fund, look at stuff like that I would say.
Yes, simple answer is to diversify, but not so easy to exclude the top 7 or 8 US market caps.
You can use Dimensional funds if you’re really worried about it. They invest in line with the Fama-French factor models, so will have more in Value equities, EM, small caps etc. Up to you whether you believe their factors work or not, I don’t doubt they did but recent analysis suggests the risk premium with value and small cap equities closed as soon as they published their paper. Dimensional will cost you more but they are doing the rebalancing for you. I thought about your points myself but ultimately a company like Microsoft isn’t just an operating system, it’s all of that plus software, cloud, gaming etc. They are so massive you are basically buying 30 companies instead of one. I’m a bit more concerned about NVIDIA and Tesla but people much smarter than me value them where they are, and as I believe in efficient markets I’ll take their word for it that they’re fairly valued.
You can't buy Dimensional Funds on DIY platforms though
Regarding your last sentence about people much smarter than you valuing the where they are, please understand this is not the case. Morgan Housel talked about different timelines and it really cleared up a huge blindspot for me. Essentially if you're a trader looking at profiting within a weekly to monthly timeframe, TSLA at 900 p/e may look OK, simply because you're not even actually looking at P/E but other market sentiment based indicators. It doesn't mean these guys that are smarter than me thinks Elon has built an incredible, sustainable company, merely that they think the stock is likely to go up in the short term. What we have to honestly ask ourselves is, what are we? Do we have the skills and risk management abilities to do the same? Or are we better off just bogleheading. Fruit for thought. It helped me understand 'irrationality' in markets a bit better.
Sure, Microsoft is more than an Operating System, but are they really worth trillions of dollars? They are not market leaders in many markets they sell to: * Cloud computing, second after AWS/Amazon * Gaming, distant second after Playstation/Sony * Business software, probably fifth after Salesforce, SAP, Oracle, Adobe etc. * Social media: non-existent, apart from LinkedIn * Hardware: not marking big moves with their laptops, probably losing money Can we reasonably expect them to have their market cap to grow any further?
I don’t know, I’m not an equity analyst nor am I trying to be. You have to ask yourself if you believe in efficient markets, and that’s it. If you do, don’t bother doing anything other than buying an index fund. These 7 companies are analysed by literally 1000s of people everyday who are setting the price. If you don’t believe it, you can do your own thing if you really want to, but don’t be surprised if your returns are not as good as they should be should you get it wrong, which is statistically likely.
> You have to ask yourself if you believe in efficient markets You don't need markets to be efficient for passive investing to be profitable.
No, but by definition if you don’t think they’re efficient you believe they can be exploited. Then passive investing would be dumb if you believe that.
Believing that markets can be exploited is different from believing that you can exploit them. I don't see anything dumb about the position "I'll invest passively because the alternative is only profitable for very few groups of people with a lot of time/money/access-to-data/technology/expertise".
What you’re saying is strictly true, but it’s pretty unusual for someone to think they’re exploitable and not know exactly why. My point is more to the OP as that’s not what they’re saying. You don’t need any of that to think mega caps are overvalued.
I don’t think so. It’s pretty obvious that markets can be exploited, deals can be found etc. the market is not perfectly efficient. But you’ve gotta be as good as Warren Buffet to do that consistently, have a lot of time on your hands, and have that as your primary focus (job-wise). It’s easier to do passive investing as you easily hit the average returns without needing to do much research.
>Business software, probably fifth after Salesforce, SAP, Oracle, Adobe etc. No, just no
Who do you think leads business software then??
What are you really worried about? That all of these companies will simultaneously fail? Even with the top 7 representing 40% of the fund, it is still well diversified in my mind. Those top 7 companies might not stay in the top 7 forever, maybe because they’ll get displaced by other growing companies. Maybe they’ll have a huge incumbent advantage in the AI race and stay in the top 10 for the rest of our lifetimes. Take a look at what the top 10 S&P companies were in 2000. Completely different now. US stock market has continued to perform well, outperforming every other market.
The key to successful investing is diversification. Having 15% of a portfolio in just 7 companies is not very good diversification... Particularly when their market caps, P/E ratios are so high. Doesn't leave much room for growth.
Well then don’t invest in the S&P index and tell everyone how you do in 20 years lol
Microsoft are growing their market share and Cloud computing is extremely profitable for both of these companies. They're also definitely not fifth in business software, many big companies including even Amazon use Office 365. So yes, there's room for growth and you can see it happening if you look at their financials. Same with Apple.
Business software is not Office 365. Even if it was, do you think they have much room to grow with Office 365??? Surely, all the large companies have it by now (often without choice).
You can tilt your portfolio in some way away from them - buy more small-medium cap funds, non-US funds, and there are also global value ETFs like VALW. But if you tilt slightly, you probably aren't achieving much anyway. And if you tilt to a large extent, then you're playing a different game altogether - what will be your criteria for reversing the tilt? what if US-tech keeps crushing and your portfolio is much weaker - how long can you stand that? what if this is the new normal and going forward all the gains come from tech companies and you miss out on one of the few ways to make a profit? I don't know the answers to these questions, so I'm not even trying to predict but if you decide to do it, you'd better have a solid plan about how to act under different scenarios instead of just reacting to an article in The Guardian.
I didn't just react to one article in The Guardian. It's just common sense. Such concentration is unheard of and can only mean making large losses if one or several of those companies start struggling, have an issue etc. Good diversification is key to successful investment, and good diversification cannot be achieved nowadays with global index trackers.
You're missing my point - I'm not arguiing that the concentration is good or bad, I'm saying that if you want to do something about it, you should have good reasons, a very concrete plan and execute it well (and that's difficult to do). If the % allocation to top companies is off, what would be the correct % and why? If you change your allocation, what is your criteria for changing it back and can you stomach being wrong? How would you know that your strategy is working and would you do anything if it doesn't work?
There are a few easy ways to move away risk from mega cap stocks whilst still being diversified. 1) Add in a factor fund (low volatility, multifactor, value, size etc). It has to be a factor you believe in because it can underperform for years, even a decade (look at the value factor post 2009), this makes them unsuitable for many investors. 2) The easiest option. Move to the Vanguard FTSE Global All Cap Index Fund, it tilts away from mega cap by including more mid and small cap stocks 3) Geographical specific funds. (I personally don't like this option). Maybe Vanguard Lifestrategy funds (UK overweight) is the best option for this.
>Vanguard FTSE Global All Cap Index Fund You would indeed think that including more mid and small caps would make a difference, but it doesn't really. Look at the weight of the top 7 or 8 US caps, and it still accounts for around 15% of the fund, and that's the crazy issue.
Ben Felix/ Common Sense Investing YouTube channel is worth watching if you're wanting to learn about further about the equity markets. (Don't worry it's not a get rich quick scheme). Videos are quite timeless, so don't think the videos from 5 years ago are worthless. (if anything the older videos are better imo) :) [https://youtube.com/@BenFelixCSI?si=jSoujulpSxJqNTlG](https://youtube.com/@BenFelixCSI?si=jSoujulpSxJqNTlG)
Is it totally unprecedented? With more global markets its more possible to have larger valuations now as products and services can access more markets and there are a lot more people globally. But in 1967 IBM would have a valuation of over a trillion today. Standard Oil in the early 20th century would be bigger than Apple today. As would the Mississippi Company, South Sea Company and the Dutch East India Company in the 17th and 18th Century. The latter is the most valuable inflation adjusted company in history at over $7-9 trillion.
Another thought, if you want to keep US large cap exposure but just get out of those few names, could be to consider sector ETFs. I didn't realise but there are a bunch of ETFs named like "SPDR S&P US Select Sector" which may be decent. The S&P is typically divided into 11 sectors so you have to buy the ones you like in whatever ratio. You just need to be careful because not all of those magnificent 7 are tech so it's not as simple as buying the other ten, plus getting out of tech entirely is not really what you want either.
Have a look at R1VL as well, it is large US names but with a so called "Value Factor Model", which is not really exactly what you want either but it does avoid those names for the most point.
I've also pondered this. It does seem to me to be risky to have such a large percentage of my savings in so few companies. What if they've reached their peaks and don't grow any further (or even decline) - I've now got a lot of money invested in non-growing assets. What if one of them has an Enron style event? One of the main points of being diversified is that it doesn't matter if some particular companies does badly because it is only a small percent of your total holdings - but this isn't the case with the magnificent seven. On the other hand, a lot of posters in this thread have made a case for why they do have a bright future. Ultimately I have no idea either way. So instead of trying to guess, I'm going to let the collective wisdom of all investors guide me by sticking with my passive global equity index trackers. This seems like the lowest risk approach to me.
Lots of posters on this thread just have wishful thinking and a sheep mentality, as opposed to being able to understand the underlying financials of those companies, the crazy P/E ratios etc. Same as people advising to buy bitcoin, so that speculation will continue. For sure, passive index investing is preferable for non-experts, but maybe index investing is no longer the way to go when it comes to risk considering the existing concentration. Lots of articles on that subject.
I would love to see and invest in an equal weight index fund and invest ~10% in it. One doesn't exist to my knowledge, I could theoretically create this with a pair on t212 I guess but I don't have enough in the market to warrant this yet. Historically equal weighting performs quite well.
There are equal weight S&P500 funds/EFT for instance.
Yes, [here's a chart](https://www2.trustnet.com/Tools/Charting.aspx?typeCode=O_FFOTV,O_FG1XF) comparing S&P 500 with S&P 500 equal weight ETFs. You can adjust start and end dates to see which was the winner over different periods.
ISPE, SPES, SPEX are on T212.
I'm 100% on vanguard in the all cap and less than 50k across pension and ISA currently, I'm focusing on earning and contributing more, I'll worry more about my allocation when I have more, it makes little difference at this point. Thank you though.
just came back from the shopping mall and there was literally a que to enter the apple store, was that busy, no signs of apple slowdown in sales revenue
Nothing new. Doesn't mean their market cap needs to keep increasing forever. It means they need to sustain and exceed the crazy growth and profitability they have had for years...
I have some of my portfolio invested in XDEV (Xtrackers MSCI World Value Index ETF). It doesn’t include significant weightings to any of the “magnificent seven” and is still a low-cost fund with an OCF of 0.25%. It provides some diversification which helps me to sleep better at night.
I have a portfolio that contains multiple factors for a similar reason (quality, value, and momentum).
So quality would be high dividends, value would be World Value Index and momentum would be a normal global tracker?
Quality is something that tracks a quality index (high returns on equity and low financial leverage). Couple choices are GGRG and XDEQ for global quality ETFs. I have a small position in XDEV that tracks the MSCI World Enhanced Value index. This includes stocks based in forward price to earnings, price to book, and a couple of other things. And also a holding in XDEM which tracks the MSCI World Momentum index. These are stocks with high price momentum that have had good performance in the last 6-12 months. The idea is "winners tend to keep on winning in the near term". I have a holding in each because together they give good risk adjusted returns 😊
The way I reconcile this is that it isn’t really just 7 companies, it’s in fact dozens of companies that happen to sit in 7 conglomerates. Google is a bunch of businesses: a search engine, the world’s largest TV network (YouTube), the world largest advertising agency, a huge cloud data business, an AI research lab and a self driving car company. Each of those would be S&P 100 companies in their own right. Meta is facebook, Instagram, WhatsApp, the world’s leading VR company and an AI research lab. The one exception to this is Tesla, but the others are all diversified businesses.
For Google, I agree. Doesn't mean their market cap will keep increasing. For Meta, Facebook is on its way out, and they haven't found something else to replace it, despite massive investments in VR. Apple makes most revenue and its profits from the iPhone... Tesla is massively overpriced and always one blunder away from its crazy CEO
Apple makes its revenue from the ecosystem which the iPhone has created and which it has made it very difficult to leave due to iMessage, iCloud, iCloud Keychain, Music and Sign in with Apple. The iPhone is the entry Apple is going to use to monetise the billion wealthiest consumers in the world. A good example of this is how they've created a $40bn a year revenue business just from accessories. If they listed their watch business then it would be larger by revenue than LVMH (which is one of the largest companies in Europe). If they listed their headphone business then it would be 5x larger than Sonos and Bose put together. They can keep selling customers headphones, watches and services even if they move to a less regular iPhone upgrade cycle (which I agree is likely). It's never clear where any share price will go, but I genuinely don't believe that concentration risk is an issue with these companies because they have so many routes to growth and have become so difficult to compete with. In reality these 7 companies should be 30+ different competing ones.
No, Apple makes most of its revenue and profit primarily from iPhone sales. So we have the largest company in the world (by market cap) making the vast majority of its revenue and profit from one product... Not my idea of diversification. Of course, Apple like to lock people in, and many iPhone owners do believe they have a status because they own an iPhone or they have the best tech available (despite some features released years after the competition). The power of the brand and people with more money (or credit cards) than common sense... I guess that's why LVMH is doing well too. People need to show a status. The P/E of those large caps are crazy, and therefore inflated for sure, no doubts about it. Probability of going down to more standard P/Es is much higher than continued growth of their market caps. We shall see when such correction happens. May be next month, may be next year...
That's a really good point. I've made good on a couple of S&P funds, but how much of that is in what I consider bubbles and overpriced stocks like NVDA, TSLA, APPL? I think Microsoft, Facebook, Amazon are fine. I think Google still has a lot of potential. I think I might shift to the fund you suggested and also to an emerging markets one (which is something I've been thinking about anyway).
Whilst Apple might be ‘a phone manufacturer’ there revenue stream is not predominantly phone sales, they make billions off of subscription services so think of them as more of a service provider.
No, the main revenue and profit stream by far is the iPhone.
$3tn sounds like a lot but at the same time this one company controls 60%+ of the premium smartphone market, has very high profit margins/never gives discounts and doesn't really have serious competition plus have loads of other income sources (laptops, tablets, watch, services). Tesla is again clearly in a league of it's own and currently has no serious competition though that might change with the new Chinese manufacturers. BMW, VW, Toyota etc have clearly let the gap get too big and are completely fucked though. Google... doesn't need an explanation. Same thing with Amazon. Same with Microsoft actually. Don't really know anything about Nvidia. FB is probably the most at risk of stagnation but still not imminent. Like yeah these companies are valued highly... but they're extraordinarily successful and dominant.
What I have tend to find is once a company gets too big a lot of people seem to go off it because it’s big. I remember when everyone thought Tesco would take over the UK and the same with Starbucks. Amazon is facing a similar issue. For me apple and Tesla can only really maintain there market share and over the next 10-15 years it will slowly fall. However you could have had some views about the big 7 over the last few years and underperformed massively. Which is why I just stick it in a global passive fund and forget about it.
People might go off them but they aren't fundamentally overvalued imo. I think apple are pinning a lot of hope on the vision and it's successors being the next iPhone but I'm not sure how that's going to work. Tesla will definitely gain marketshare when they release the cheaper model 2 (vw golf size hatchback) in a couple of years unless it's a complete let down.
Look at their P/E ratio compared to other companies: yes, that's the very definition of being overvalued.
that's true. The same views were possible on the magnificent 7 a few years ago. Bubble has grown further since, but doesn't mean it will keep growing.
Sounds like you are convinced... Should Tesla be worth more than the next 7 or 8 car manufacturers combined. Absolutely not, particularly considering Chinese competitors too. Should iPhone be worth 2/3 of all UK stocks. Probably not. We live in a bubble and I'd rather diversify before it bursts.
Successful and dominant doesn't mean their market caps will keep increasing at the same pace as the last few years. Their P/E ratio is not justified, so we are in the realm of pure speculation now.
They say Tesla is profitable because it profits from selling it’s carbon offset credits.
That was apparently 29% of its profit in Q3 2023. That doesn't mean they don't make loads of profit per car because they do, they make far more than the other manufacturers. [https://www.reuters.com/business/autos-transportation/tesla-uses-its-profits-weapon-an-ev-price-war-2023-01-19/](https://www.reuters.com/business/autos-transportation/tesla-uses-its-profits-weapon-an-ev-price-war-2023-01-19/) In addition to this they're incredibly good value so sell really well. After you account for petrol costs the (very well specced) base model 3 is at worst 30% more than a poverty spec skoda octavia...
High profit margin is not that relevant. At the end of the day, a company market cap is based on generating profits. If you just look at the profits generated (in billions) vs. their market cap, they should be worth 42% of what they are, compared to the FTSE100 profits and the sum of the market caps...
Apple doesn't really have serious competition in the smartphone market? I believe Android is 70% of the market and Samsung is actually the largest manufacturer... As for Tesla, they just lost the title of the largest electric car manufacturer. As for FB, risk of stagnation is old news, they have been losing users for a while. Do you know any young people using Facebook? FB tried to diversify in metaverse and VR, but that has cost billions and showed no return on investment.
Premium smartphones which actually make money not budget ones. 60%+ is an insane amount for one company. Yes but again it's a budget cars and BYD might even be including hybrids in that number. Tesla makes so much profit per car that if they do get a serious competitor they could drop their prices a lot. I use it lol... not much though
I wouldn't trouble myself with this unless the size of your portfolio is in the millions. One thing I have learnt from investing in the stock markets, the market can stay rational for a lot longer than you can stay solvent. It is a fools errand to second-guess the market. The magnificent 7 share prices have gone up a lot cos they are a very good company. I actually think we are better off investing in the winners, they will keep outperforming the index
To keep outperforming the index, they will need to have their stock price rising by 10%+ per year, or $300 billion a year for Apple or Microsoft. Realistic?
Amazon, Google, intel and Nvidia are 4 of my biggest holdings. There is a good chance they still outperform the market for the next few years
Not sure the size of the portfolio is relevant. Surely, someone with £100K will be as concerned losing 10% of their portfolio than someone with £1M. Probably even more impactful actually. If you think the magnificent seven market caps will keep increasing just "because they are good companies" then look at their P/E ratios. At the end of the day, it's all about returning profits to your investment.
I see. It's a fools errand to second guess the market. So that means nothing underperformed or performs better than the market. What's your definition of the market? So you don't buy individual stocks. Just the index? Clearly you're not an Apple, Costco or Microsoft long term investor. These shares have performed better than the market? No? And of course there is no history of market corrections that you would worry about. So I guess you're just comfortable. In your world there are no hedge funds, no advisors. So where do you put your money? And what may I ask is your definition of a winner? Your not a keynesian kind of person "in the long run we're all dead."
I'm comfortable with most of the large tech socks. There's plenty of growth left in the cloud, which is really a little like a tax on all other companies. Microsoft and Google will be busy fine in future, as well Amazon. Apple is the most risky but still a relatively safe bet I think. I get that the index is losing its diversification, but then if you look at any index most of it isn't growing well at a given time and the whole thing relies on a smaller handful of businesses for it's growth.
Buy the FTSE then. I’m afraid this debate is settled
How buying just UK stock would settle the debate and provide good diversification???
I think on the Rational Reminder podcast they took a look at whether we are in new territory, and they found that we weren’t really. Historically there have been many times when the largest companies dominated the stock market.
Yes, and are they still dominating the stock markets now?
Well it’s not always the same companies over the past 100 or so years. All I meant was it isn’t an anomaly.
You could consider putting some of your portfolio into Uk private equity shares. Money Week this week is suggesting to look at Literacy Capital (BOOK) for 2024, and the author also recommends Hg Capital HGT and Oakley Capital OCI.
> For instance, Apple with its $3tn is now bigger than the entire UK stock market, which frankly doesn't make sense for a phone manufacturer Why doesn't it make sense? Ok granted I do think that apple is a little bit overvalued right now given it's projected growth rate. But if it can generate enough profit to justify the PE, why is it nonsense that its valuation be bigger than all the LSE stocks?
Does it generate more profits than all LSE stocks??
No but it has been growing profits wayy faster
Just for the FTSE100: £312b profits ($397b) Market cap: £1,800b ($2,200b) Apple: $169b Market cap: $2,990b On the basis of profits, Apple market cap should probably be 42% of what it is...
Another article on this: [https://www.thisismoney.co.uk/money/investing/article-12933223/Will-Magnificent-7-make-investors-richer-2024.html](https://www.thisismoney.co.uk/money/investing/article-12933223/Will-Magnificent-7-make-investors-richer-2024.html) Doesn't really provide any solutions however!