Why the Stock Market Might Be at Peak Concentration Risk
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What is the main topic discussed in this episode?
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Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe Weisenthal.
Joe, do you remember when you first heard the term MAG Seven?
You know, I don't, if I'm being honest, but you know, these acronyms that uh for big tech stocks, like they kind of you know, people used to talk about FANG, right?
I know, I was just thinking that. Like when did the handoff from Fang to mag seven actually happen?
We need to do one of those like Google Trends Engram things. That's a good question, 'cause yeah n and then there was like Fang Plus and then Fang. And uh but they're all kind of the same thing. It's just big tech stocks.
Right. So the uh the terminology, the acronyms might change, but I think the subject is always kind of the same and the concern is always the same. It's this idea that there is like a handful of big companies, usually tech stocks, that are driving the entire market.
Yeah, and it it drives people crazy, right? They're so big And they've grown so much and the stocks have done so well over the years, and all these old strategies of like, oh, we're gonna like buy cheap or buy cheat low book value, you know, price to book and all these traditional investing patterns, it never mean reverts. For years and years and years, except for like five minutes in twenty twenty two, they just go straight up, and the only test of whether you're a good investor or not is whether you're overweight. Whether you bought technology. Yeah, that's it. Yeah, that's
it. That's it. That real that really is the uh the alpha nowadays. But you know, you see these numbers thrown around, like I think Goldman Sachs said that the top ten stocks now account for something like thirty eight percent of the S P five hundred, which is a record.
Yeah.
And seems quite a lot on the face of it. And I saw another number out there saying 26 stocks now account for half of the entire value of the SP 500. So I think it brings up a bunch of interesting questions. How bad is the concentration? Is it intrinsically bad in and of itself? Is it actually that risky?
Yeah.
And also How are financial professionals and the market itself actually reacting to this concentration risk? So I think we should talk about it.
Totally. You know, I look at myself in the mirror and I say to myself Do
you point at yourself like that meme?
I on some days I point and say you're a good and 'cause you know, I'm just like a boring index fund investor for my retirement, you know? So I point say, Oh, you're a good investor 'cause you've been really long tech and then I s and then on other days I wake up and say, Oh, you are really heavily exposed to twenty six stocks. And so, you know, it's like two, you know, glass half full, it's like good, but also makes me a little anxious.
You shouldn't take credit. You should give that credit to uh S and P and Thank you to And then when the market collapses you should blame them.
I do. I say thank you to the wonderful fund managers at S and P.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–5:53
2
What is concentration risk and why is it rising in the S&P 500?
5:53–12:55
3
How do the top 10 stocks now represent 38% of the index compared to a decade ago?
12:55–23:08
4
Why do finance professionals consider the current market “peak concentration”?
23:08–33:14
5
How are index providers like S&P and Russell responding to the concentration problem?
33:14–39:18
Speakers
6 identifiedMore from Odd Lots
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