I also don't think the top 10 companies, with very few exceptions, are that expensive. In fact, I think they might be less expensive than the lower 450. Have you tried to do the math? Curious as to why you don't like the big 50?


Jim has already answered this question better than I would have, but my thinking is that (a) the biggest companies by market cap tend to underperform the average, just by a sort of regression to the mean; (b) that has not been true in the last few years, but that just makes it all the more likely to be true in the next few years, as the weighing machine kicks back in; (c) I agree with you that some of the top 10 companies ma not be overvalued (MSFT, META) but I think 2 of the big 3 (AAPL, NVDA) are way overvalued, and they are already 22% of the capitalization of the top 50 companies. And without analyzing them all one by one, just in the top 25, you've also got JP Morgan Chase (2.2x book), Visa (36x earnings), Lilly (58x), Mastercard (40x), Netflix (56x), Costco (59x), Bank of America, Coca-Cola (29x), and Palantir (100x revenues). These are all priced as though there was never going to be a recession or a trade war! I'm pretty comfortable betting on humdrum smaller companies with low multiples and putting on a 12% hedge (it's actually 11% XLG, and 1% Canadian financials ETF XFN.)



You shorted XLG as a hedge and bought Tesla as a hedge to your hedge. Is there a way to hedge your hedge to your hedge?

No, I didn't really have to hedge out the 3% of 11% (i.e. 0.33%) that Tesla represents, and if so, I wouldn't have a 1% position, I would have a 0.3% position. In fact, this is just my lame excuse to take a flyer on Tesla, on the small chance (20%?) that it will be worth $10t in 5 years instead of $1t. If it does, then my XLG will lose me 3% but my TSLA will win me back 9%, and, more important, I will have bragging rights.

dtb