9 of 10 largest SP500 stocks are down in the past 3 months

[Texas Proud]

I have had substantial portions of the portfolio in those for decades, "thanks" to a former FA whose strategy apparently included a belief that the S&P 500 was not diversified enough. It cost me a bit of the S&P action, so I'm hoping to see some upside now.

I guess you FA never did portfolio analysis...

It has been many many years since I had my class but after about 30 or so diverse stocks adding another does not change the portfolio much at all....

Even asset allocation is not as important as people think... the difference between a 60/40 vs a 40/60 is not much... now, going to the extremes such as 90/10 or 10/90 does make a difference...

 

[Lorenzo]

I guess you FA never did portfolio analysis...

It has been many many years since I had my class but after about 30 or so diverse stocks adding another does not change the portfolio much at all....

Even asset allocation is not as important as people think... the difference between a 60/40 vs a 40/60 is not much... now, going to the extremes such as 90/10 or 10/90 does make a difference...

Fascinating. I know nothing of portfolio analysis, though in playing with FIRECalc I have indeed seen for myself just how little difference the stock-bond ratio makes across a wide range. I suspect the big issue for an FA with a 30-stock portfolio is that it might not look as defensible in arbitration as an index fund. They're just covering their backsides as fiduciaries.

 

[audreyh1]

I guess you FA never did portfolio analysis...

It has been many many years since I had my class but after about 30 or so diverse stocks adding another does not change the portfolio much at all....

Even asset allocation is not as important as people think... the difference between a 60/40 vs a 40/60 is not much... now, going to the extremes such as 90/10 or 10/90 does make a difference...

An important distinction between 40/60 and 60/40 is that the latter will significantly outperform the former in long term growth. In terms of portfolio survival (classic SWR stats) they are about the same, but not in terms of volatility or long term growth.

 

[Stormy Kromer]

Folks, look at the SP returns from the last 3 years............we are fortunate to be the disciplined investors we are and participated.

 

[Koolau]

Folks, look at the SP returns from the last 3 years............we are fortunate to be the disciplined investors we are and participated.

Indeed!! My results have truly surprised me.

 

[Dash man]

My point? Diversify to value funds, dividend funds, foreign funds.

Have you not been diversified previously? It seems strange to wait until a supposed bubble bursts to diversify.

 

[NW-Bound]

Folks, look at the SP returns from the last 3 years............we are fortunate to be the disciplined investors we are and participated.

Sure. But as they always say, "Past performance does not guarantee future results".

I guess it means one can (should?) stay invested, but should not expect and plan to spend all that money that is supposed to come.

As for me, the more the market god gives me, the more suspicious I get. I have been fooled before. Multiple times too.

 

[OldShooter]

Sure. But as they always say, "Past performance does not guarantee future results". ...

Particularly when the OP thinks that "past" is three months of results from less than 15% of the US stock market.

 

[NW-Bound]

I just looked up the market cap of the 9 largest companies in the S&P500. They are:

• NVIDIA (NVDA): ~$4.8 trillion
• Apple (AAPL): ~$4.0 trillion
• Alphabet (GOOGL/GOOG): ~$3.8 trillion
• Microsoft (MSFT): ~$2.9 trillion
• Amazon (AMZN): ~$2.25 trillion
• TSMC (TSM): ~$2.0 trillion
• Meta Platforms (META): ~$1.64 - 1.65 trillion
• Broadcom (AVGO): ~$1.51 trillion
• Tesla (TSLA): ~$1.51 trillion

I added them up to $24.42 trillion. The entire S&P500 is $58 trillion. So, these 9 companies are still 42% of the S&P 500. A huge percentage, even after the recent drop.

 

[Al18]

Have you not been diversified previously? It seems strange to wait until a supposed bubble bursts to diversify.

I’ve been diversifying for many years. Judging by the replies here, I’m preaching to the choir. SP500 has been overpriced for a few years, in my opinion.

 

[NW-Bound]

I’ve been diversifying for many years. Judging by the replies here, I’m preaching to the choir. SP500 has been overpriced for a few years, in my opinion.

As I pointed out, the S&P500 is diversified too because it does have a value component. It depends on one's definition of "diversification", and no way we can get a consensus on that.

 

[Time2]

9 of the largest stocks in the S&P are down, looks like a buy!
signal!

 

[NW-Bound]

As I described elsewhere in the forum, investors are selling the Magnificent 7 and bidding up non-tech stocks, but are these value stocks? What do you think of Kroger, your neighborhood grocer, current P/E of 63? How about Walmart, up 16.5% in last 3 months, current P/E of 46.6? Yikes. These grocery chains make Amazon and Microsoft look cheap.

OK, let's go outside the S&P500, down to the Russell 2000. Here's what I found on the Web.

The estimated P/E ratio for Russell 2000 index is 18.64, on March 02, 2026.

Considering the last 5 years, an average P/E interval is [13.62 , 17.34]. For this reason, the current P/E can be considered Overvalued.

Oh well, it's the lesser evil. Maybe I should get some.

 

[Al18]

The typical SP500 market based index is not diversified. The bottom 300 companies do not significantly contribute to the performance of the fund. For some perspective Ford is #200 on the list, and it represents .09% of the SP500. If you invested $10K in a SP500 index fund, $9 would be invested in Ford.

However if you invested $10K into RSP Equal Weight SP500 fund, then $20 would be invested into each company

 

[NW-Bound]

The typical SP500 market based index is not diversified. The bottom 300 companies do not significantly contribute to the performance of the fund. For some perspective Ford is #200 on the list, and it represents .09% of the SP500. If you invested $10K in a SP500 index fund, $9 would be invested in Ford.

However if you invested $10K into RSP Equal Weight SP500 fund, then $20 would be invested into each company

I hear you. However, people say that the companies with smaller capitalization are so because of a reason. They are not important to the economy as the companies with multi-trillion market values, and the market cap difference reflects that. I don't quite agree, but how do we argue against that?

 

[Koolau]

I’ve been diversifying for many years. Judging by the replies here, I’m preaching to the choir. SP500 has been overpriced for a few years, in my opinion.

Just asking because I don't know the answer: How can "something" be overpriced for a few years? Doesn't arbitrage take care of prices that are out of line?

Again, just asking. I'm pretty ignorant on these matters. I do own a lot of funds outside the S&P.

 

[Diogenes]

Well, to be fair, the S&P500 has some value stocks in there too. It is said that currently 41% of the S&P market cap is in growth, while value stocks make up 30% (Source: investopedia).

And if you don't slice-and-dice and rebalance between growth/value yourself, the market is doing it for you. That's why the S&P is basically flat YTD, while the Magnificent 7 stocks are down YTD and Walmart, Target, Exxon and other ho-hum stocks are having their day in the sun.

Still, what bothers me is that the ho-hum stocks are not really value, if you look at their P/E. It does not smell right to me, but what do I know?

I'd argue that the real dichotomy isn't between growth and value, but a spectrum of size.... huge, large, medium and small. For too long, the larger the company, the better it's been doing. The biggest companies in the S&P 500 did better than the smaller companies. The S&P 500 did better than the midcap index. And the midcap index did better than the small-cap index.

The reversion to the mean that I'd like to see, is - if not a "small cap premium", then at least an attenuation of the small cap penalty.

 

[Al18]

I use PE ratio as a measure of how a stock/index is priced. Not everyone agrees with this metric, but some do. According to S&P 500 PE Ratio - Multpl the mean of the SP500 is 16 and the median is 15. Currently the SP500 is 29.57. Mr. Bogle famously said reversion to the mean, so a 50% drop in price will bring it back in line with historical norms.

 

[NW-Bound]

I'd argue that the real dichotomy isn't between growth and value, but a spectrum of size.... huge, large, medium and small. For too long, the larger the company, the better it's been doing. The biggest companies in the S&P 500 did better than the smaller companies. The S&P 500 did better than the midcap index. And the midcap index did better than the small-cap index.

The reversion to the mean that I'd like to see, is - if not a "small cap premium", then at least an attenuation of the small cap penalty.

It has always been true that a company with high growth is awarded a richer P/E than a company with less growth. And this is logical too. Investors do not mind to prepay for the prospect of a higher earning in the future.

And you are certainly right that large companies have been doing better than small companies in the last couple of decades. The small-cap penalty you mention is not irrational.

A reason that large companies do better is the globalization, which requires huge investments in order to have a worldwide foot print. This gives US companies an edge. Taleb in his books talks about the current situation where "the winner takes all". Hence, we have the phenomenon of several US companies having the market cap of the same level as the annual GDP of Germany ($5 trillion), and France ($3.6 trillion). It's mind boggling.

Just to maintain status quo, companies now trip over one another to show that they can grow faster than the competition. The current AI development pitches many of these multi-trillion companies against one another, and they try to outspend one another. The P/E of these companies is not really bad, but can they maintain their earnings?

I suspect it will not end well, but am not sure yet what to do because dropping out of the market is not the solution. Not yet. I guess I will play by ear.

 

[NW-Bound]

I use PE ratio as a measure of how a stock/index is priced. Not everyone agrees with this metric, but some do. According to S&P 500 PE Ratio - Multpl the mean of the SP500 is 16 and the median is 15. Currently the SP500 is 29.57. Mr. Bogle famously said reversion to the mean, so a 50% drop in price will bring it back in line with historical norms.

Perhaps a better measure is PEG. A stagnant company with little or no growth does not deserve to have a P/E as high as that of a company with fast growth.

The problem is that the entire US stock market is overvalued, and has been for a while. Where do you take your money? People have gone to precious metals, and all sorts of alternative investments. Perhaps there's too much money floating around, and no good investment opportunities? Yet, we have people who struggle to make a living. It's not right, but I am no economist nor sociologist to understand the problem, let alone fantasizing a solution.

 

[Al18]

Value stocks, which are typically large and mid cap have a lower PE than many of the large/gigantic stocks. SCHD has a PE of 19.64, and many of the Value index funds have a PE of 21-22. So there are stocks in the SP500 that are somewhat overpriced, but not grossly. Many foreign index funds have a PE of 20-22 and pay higher dividends than the SP500.

 

[Koolau]

Perhaps a better measure is PEG. A stagnant company with little or no growth does not deserve to have a P/E as high as that of a company with fast growth.

The problem is that the entire US stock market is overvalued, and has been for a while. Where do you take your money? People have gone to precious metals, and all sorts of alternative investments. Perhaps there's too much money floating around, and no good investment opportunities? Yet, we have people who struggle to make a living. It's not right, but I am no economist nor sociologist to understand the problem, let alone fantasizing a solution.

Yeah, I've thought for a while that there is too much money chasing too few "goods" (equities, RE/land, PMs, bonds, CDs, commodities, etc.). So price inflation results.

Maybe we should discuss (in another thread) whether there are viable alternatives that have not yet been bid up. I can't think of any real laggards but I'm no expert.

Unfortunately, in our system, an "intervention" (like a r-word) seems to be required to return prices to something approaching rational. Market timing doesn't w*rk for most of us, so we're forced to try winning at a losers game. Sorry, a rant wasn't actually intended.

 

[Chuckanut]

Sp500 is at or near a record high.

What else is new?