Every two weeks, all around the country, working Americans have money deducted from their paychecks and diverted into their 401(k)s. This probably includes you. A lot of that money is then invested in just one thing: A fund that owns the S&P 500 index
SPX
of large U.S. companies. People typically assume this means they are spreading their money across a wide, diversified range of big company stocks. But do they realize what they are really buying?
Read: ‘We’re not in Kansas anymore’: Why the 60/40 portfolio might be dead, and what to do now The stock market this year has gone so crazy that today, more than a quarter of that money is going into just seven stocks: Apple
AAPL,
+0.80%,
Amazon
AMZN,
+6.83%,
Google parent Alphabet
GOOG,
-0.03%
GOOGL,
-0.09%,
Facebook parent Meta
META,
+2.91%,
Microsoft
MSFT,
+0.59%,
Nvidia
NVDA,
+0.43%
and Tesla
TSLA,
+0.75%.
How much is going into most of the other 493? Peanuts. These seven may be fine companies. Let’s assume they all are. But this is no kind of diversification. Wall Street won’t say it, but this breaks every common-sense rule in the book. To those who think this is OK because these companies are so terrific their stocks just can’t fail, lend an ear to Abdulaziz Anaim. He runs a boutique global investment firm, Mayar Capital, based in London. For his latest letter to his investors, Anaim looked at what happened to the last group of seven “these can’t fail” stock-market favorites, back in 2000. Today’s big seven are known on Wall Street as the Magnificent Seven (thanks to Jim Cramer, natch). Anaim calls the earlier version the OG — for Original Gangster — Seven. They were Microsoft, Cisco Systems
CSCO,
+0.37%,
Intel
INTC,
+9.29%,
Amazon, Walmart
WMT,
-0.37%,
General Electric
GE,
-2.25%
and Qualcomm
QCOM,
+0.80%.
They, like the Magnificent Seven today, were almost universally beloved on Wall Street. Fund managers bragged to each other on the golf course about how much of each stock they owned in their portfolios. The stocks could do no wrong. They couldn’t fail. The only way was up. You can guess the sequel. They soon drenched their investors in a sea of …
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