QVMM - The Mag. 7: Concentrate Or Diversify?
2024-04-26 10:05:00 ET
Summary
- The Mag 7 has clearly had a terrific single year and a good cumulative three years.
- In order to outperform, a trader needs to be nimble enough to know when to switch from concentration to diversification and when to switch back.
- I personally favor the diversification of risk approach.
Datatrek summarized things this way: "Without 5 Big Tech names, S&P 500 earnings would be down 6.0 pct in Q1 rather than the consensus estimate of +0.5 pct growth. AMZN (AMNZ), GOOG ( GOOG ) ( GOOGL ), META ( META ), MSFT ( MSFT ) and NVDA ( NVDA ) are the difference. The 'S&P 495' are expected to turn the corner later this year, supporting current equity market valuations" (Datatrek Morning Briefing, April 22, 2024, by subscription). So, what does an investor do? Concentrate or diversify? My colleague Matt McAleer discussed the issue of concentration versus diversification in Cumberland's "Week in Review". In order to demonstrate the issue Matt discussed, we are borrowing two charts and wish to thank Ben Stevens of AMG for obtaining permission so we may share them with our readers. The charts show the "Magnificent 7" stocks and their returns for three years: 2021, 2022, 2023. The returns are shown year by year and cumulatively. Here's chart 1 showing the individual returns of the members of the Mag 7 over three successive years....
The Mag. 7: Concentrate Or Diversify?