Do you remember the game Concentration? Me neither, but apparently, it’s where you flip cards over and try to remember where the matching card was. If that sounds boring to you, that’s because it was. But in the 1960’s, it was a real hootenanny. Here’s a vintage pic.
If you invest in the “index”, you are actually playing a different version of Concentration. You invest in indexes to get broad diversification. Or at least that was the virtue signaled when the entire retail investment world abandoned active stock-picking mutual funds for the low-cost, market-efficient practice of buying indexes.
But a funny thing happened on the way to the market. Back in November of 2024, the top 10 stocks in the SP500 account for 36% of it’s weight. According to the SP500 official website today, it’s 33.6%. That means you were buying 500 stocks, but 10 heavyweights impacted performance far greater than the other 490.
Actually it has been happening all throughout history.
Notice the red dots when concentration peaked. What followed afterwards?
A massive bull market? Actually, yes. Once in 2020 we had a sharp dip followed by a massive run up to today. You can get the complete report here.
But typically, it’s meant a sharp dip that persists. Will history repeat or rhyme? And more importantly is the concentrated juice worth the squeeze? If you have the answer, holler at ya boi, click here.