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The usual "Narrative" is that the stock market in form of the S&P 500 is climbing from new high to new high, with the "indicator guys" here and at the MI board therefore seeing all signals on "Go!".

But this picture is very different if you look at the S&P without just a very few dominant stocks and their constant and exorbitant rise this year. Just have a look without Nvidia, Apple and Meta.

Apart from Berkshire I sold everything during the first few months of the year - but kept 1 share each to "keep me honest", to follow them and to see what I might miss by selling them (or not).

Because of said narrative one should expect that I missed out on quite some gains, but no: From around 8 stocks I owned only Alphabet with +10% is up a decent but not exactly overwhelming amount since I sold, and only with Paypal I really missed out (+25%). All others are roughly unchanged from where they were in the first months of the year - apart from DG which lost a full 1/3 since.

So although the S&P is constantly rising since I sold, I didn't miss anything. That could be because I might be an especially bad stock picker, but it seems to be true for most other stocks I am following as well. What I observe is either not or only a little higher, or even far lower than in say February or March, no matter whether it's the boring conservative stuff like MKL, MCD, DIS, KMX, HSY,J&J, DG, VZ, WRB, or former high-flyers like DDOG, NET, CRWD, S, SNOW, or even MSFT.

Therefore I am sceptical about the usual "All good as long as the index is climbing from new high to new high", as I see those "new highs" to be kind of "fake", not containing much information and to be not as relevant for the state of "The Market" as it appears.

The usual "Narrative" is that the stock market in form of the S&P 500 is climbing from new high to new high, with the "indicator guys" here and at the MI board therefore seeing all signals on "Go!".

But this picture is very different if you look at the S&P without just a very few dominant stocks and their constant and exorbitant rise this year. Just have a look without Nvidia, Apple and Meta.

Apart from Berkshire I sold everything during the first few months of the year - but kept 1 share each to "keep me honest", to follow them and to see what I might miss by selling them (or not).
...
So although the S&P is constantly rising since I sold, I didn't miss anything. That could be because I might be an especially bad stock picker, but it seems to be true for most other stocks I am following as well. What I observe is either not or only a little higher,

I think you just self-identified the problem. ;-)

I took a quick look at a few of my portfolios that don't hold any of the top S&P500 stocks. Jan 1,2024 to Oct 25 No funds added or removed.
+14.5%
+17.7%
+23.4%
+19.5%
+17.5% (This one has 4% NVDA)


How could we figure the S&P500 return without those top few stocks? How about a portfolio benchmark starting with SPY in January and give a negative weight to each of those top holdings according to their weights, increasing the SPY weight so the total comes to 100%.

SPY: 29.85%
SPY w/o those: 22.50%

https://testfol.io/?d=eJy1kTFvgzAQhf%2FLzYAMSWnEXH...

So, yeah, the other 490 stocks in the S&P500 are also doing gangbusters.

So then I had another thought. What about _just_ the top 10 of the S&P500, in proportion to their wright?

WOWSA!!!

SPY        29.85%
W/o top10  22.50%
Top 10     53.94%  

So then I had another thought. What about _just_ the top 10 of the S&P500, in proportion to their wright?

Did you try that in the decades prior to, say, 2015?
e.g., top 5 by market cap equal weight 1986-2012 inclusive underperformed the cap weight S&P by a rather remarkable 4.0%/year.
Just because something has been observed a lot recently doesn't make it a law of nature : )

I'm not saying the super-giga-caps are a bad bet right now. Who knows? It's only a few firms, and they have their own idiosyncratic futures.

But I'm very confident that they aren't a good bet today just *because* they are the super-giga-caps. Historically, if you know nothing else, that's a group that's a bad bet. If something is both very big and overvalued, that's where it will be found.

Jim

Did you try that in the decades prior to, say, 2015?

No, I was just responding to the OP's post about bailing out this January.

And I find it interesting to try out portfolios at testfol.io, since portfoliovisualizer went paywall. It's easy and fun to play with. I toss him a few bucks every once in a while.

While eating lunch it occurred to a possible fairly easy way to see what the S&P500 did since January aside from those supergigacap monsters. Surprisingly well, way above average. They only added 7.4%. So it was a good year for EVERYBODY, not just those 10-12 stocks. It's not like those 10 carried the other 490 duds, since they were NOT duds (as a group).

GOOG beat earning estimates yesterday, MSFT beat estimates today. "Microsoft gained 2% in after hours trading."
Tomorrow Amazon and Apple report.

For now at least, it is good to have a large weight in those dozen stocks. 2024 is shaping up to be a very good year. Bailing out in January wasn't a good move. Being driven by emotional fear wasn't a good move.

There are times when the place to be is in mega-caps.

There are times when the place to be is in mega-caps.

Though true, I think it would be fruitful to refine that:

There are times when the place to be is in certain specific individual firms that are doing particularly well, or are seen to be doing particularly well.
Sometimes those few are, more or less by coincidence, extremely large firms.
At those times (and in general only those times) a cap weight approach does particularly well versus any other diversified investing approach.

The justifiable portion of the observation that this has been the place to be lately is primarily down to the vagaries of the specific firms, not down to the specific fact that those firms are huge. Sometimes all the very best performing firms have tickers starting with the letter A, and that's the place to be. It isn't a rule you can generalize, though.

Why split hairs?
I think it's important to make the distinction in this particular case because the general long run rule in the past appears not to have been random chance, but the reverse. Very frequently (but not always) the very largest cap firms achieve that crown via material overvaluation which doesn't last, leading to poor forward returns. Among the 500 largest stocks by market cap, the CAGR of the top 7 (equally weighted) has been more than 2%/year lower than the CAGR of the next 493 in the last 38 years, a stretch which includes the recent FAANG+ leadership.

Jim

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