Extreme Concentration in the S&P 500

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Econberkeley
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Extreme Concentration in the S&P 500

Post by Econberkeley »

The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
Last edited by Econberkeley on Mon Jun 10, 2024 10:46 pm, edited 1 time in total.
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Re: Extreme Concentration in the S&P 500

Post by RyeBourbon »

I am elated that those stock are doing so well. S&P 500 index is at an all-time high, you know.
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Re: Extreme Concentration in the S&P 500

Post by Doctor Rhythm »

Weird synchronicity: viewtopic.php?t=433395

Maybe buy more international stocks to diversify?
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Re: Extreme Concentration in the S&P 500

Post by KlangFool »

OP,

1) What is your asset allocation?

2) If this worries you, why do you keep 50% of your investment in the S&P 500?

3) Where is your International stock diversification?

4) Your investment strategy should account for this. The possibility of S&P 50 is in a bubble and it may crash and not recover for a long time.

5) I do not know and care whether this is a problem. I am diversified.

6) Don't worry, be prepared instead.

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Re: Extreme Concentration in the S&P 500

Post by David Jay »

Do you have better information than all the professionals trading in the market? Prices are set by traders, and the majority of trading volume is by professionals. Thus the Wall Street professionals have determined the value of those Top-10 companies.

I believe it was Churchill who said something to the effect that democracy was a terrible system, just superior to every alternative. What is your alternative to the market?
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Re: Extreme Concentration in the S&P 500

Post by nisiprius »

It doesn't bother me because the composition of those top stocks is constantly changing. You can see this from the fact that the nickname for them has to keep changing. It's not FANG any more, it's currently the "Magnificent 7," but there are already articles saying they are not so magnificent and any moment now there will be a new set and a new nickname.

The argument for worrying is "what if the big stocks decline?" But Netflix has declined so much it's not even in the top 20 any more, and its plunge didn't crash the S&P 500 because other stocks rose to take its place.

Take a look at this video, Top 10 S&P 500 Companies by Market Cap (1980-2020) The whole video is three minutes long; see if you can dig in and watch the whole thing.

The stock market always has a "disproportionate" dollar weight in a relatively few big stocks. That's just its nature. Alarmists and index-knockers cast around until they can find some measurement of concentration that they can claim is at an "all-time high." Notice that the number of stocks they are looking at keeps changing. Sometimes they say "the five biggest," sometimes "the ten biggest," sometime "the seven biggest." Sometimes they look at a sector and say "tech is at an all-time-high percentage of the market."

Currently Eli Lilly, Berkshire Hathaway, and JPMorgan Chase are in the top ten but are rarely mentioned because they don't fit the narrative of "big tech is eating the market."
Last edited by nisiprius on Tue Jun 11, 2024 8:10 am, edited 2 times in total.
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Re: Extreme Concentration in the S&P 500

Post by retire2022 »

I’m okay with VOO concentration

44% VOO
33% VGT
13% AAPL
7% cash

Portfolio at 3.1 million it will get larger faster
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Re: Extreme Concentration in the S&P 500

Post by Big Dog »

I don't find it a concern, since I've been in the 500 since the early days when Bogle came up with the first Index available to the public. That said, if you are disturbed, perhaps you shoudl diversify more (Total Stock?, International?...)
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Re: Extreme Concentration in the S&P 500

Post by slondr »

nisiprius wrote: Mon Jun 10, 2024 9:19 pm The argument for worrying is "what if the big stocks decline?" But Netflix has declined so much it's not even in the top 20 any more, and its plunge didn't crash the S&P 500 because other stocks rose to take its place.
Not only that, but despite Netflix's truly epic collapse in share price, it's now up 252% since then, in just about 2 years.
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Re: Extreme Concentration in the S&P 500

Post by arcticpineapplecorp. »

you should probably read the other posts on the market being "too" concentrated:
https://www.google.com/search?sitesearc ... rated#ip=1

sounds like the market has spoken.

"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham

do you only believe in owning the market when it does what you think it should?

what's the other half of your investments in?
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Re: Extreme Concentration in the S&P 500

Post by arcticpineapplecorp. »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
the S&P500 isn't "the market". It's about 82% of the market.

If you look at "the market" at least the US market you see the top 10 stocks in VTI make up 25.54% of the fund. Source: https://investor.vanguard.com/investmen ... omposition

does that make you feel better to know that the top 10 stocks of VTI "only" make up 25% of the index, rather than 35%?

less concentrated isn't it?

If you have 50% of your money in that, then the top 10 stocks only make up half of 25% or 12.5% of your portfolio. So 10 stocks making up 12.5% of your portfolio means...

1 of those 10 stocks on average makes up around 1% of your total portfolio.

sounds like a nothingburger to me, like most articles on the internet which are designed to irritate you, or get you anxious/fearful so you do something, rather than simply stay the course.

what do YOU think?
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Re: Extreme Concentration in the S&P 500

Post by TimeIsYourFriend »

It is not concerning because the market hasn’t dropped 20% or more. Thinking you can avoid a crash by evaluating price levels or concentration is a fool’s errand I would say.
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Re: Extreme Concentration in the S&P 500

Post by cosmos »

Always be concerned about the coming 98% stock market crash but stick to your IPS and AA.

As others point out are you prepared for the crash and job loss at the same time?
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Re: Extreme Concentration in the S&P 500

Post by bikechuck »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
I think that it is a potential risk so I mitigate the risk by holding 70% of my equities in a total U.S. stock market fund, 20% in a total international fund and 10% in a small cap value fund.

Recently I would have been better of holding 100% in a total US or S&P 500 fund but I am sticking to my plan.
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Re: Extreme Concentration in the S&P 500

Post by placeholder »

Sure if you had knowledge of the future investing would be easy and profitable so in my case I have 30% of the stock allocation to international and have a tilt to small and value which hasn't been providing a lot of late but since retiring in 2018 my 60/40 portfolio is up 45% so I don't have much room to complain about any segment of the allocation.
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Re: Extreme Concentration in the S&P 500

Post by Johm221122 »

I don't mind if US large cap stocks are concentrated

But it would bother me if I only held large cap US stocks
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Re: Extreme Concentration in the S&P 500

Post by Xrayman69 »

When and if the top 10 pull back the money pulled out to cause the decline in those individual share prices will likely go to one of the other 490 companies stocks making up the 500 or bonds driving down yields. If a rotation occurs I’m ok. Thus I’m good with my assets allocation and prepared for any crash in equities and prepared to weather the storm for the next 5-10 years. In 5 years from now I will likely need to adjust my asset allocation
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Re: Extreme Concentration in the S&P 500

Post by retired@50 »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
This doesn't bother me in the slightest.

Regards,
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Re: Extreme Concentration in the S&P 500

Post by Thesaints »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.

What do you guys think?
They are more than 28% of the total market. Do you find that less disturbing ?
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Re: Extreme Concentration in the S&P 500

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This topic is now in the Investing - Theory, News & General forum.
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Lawrence of Suburbia
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Re: Extreme Concentration in the S&P 500

Post by Lawrence of Suburbia »

arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:37 pm
"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham
I've never understood this quote; what did he mean by 'weighing machine'?
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Re: Extreme Concentration in the S&P 500

Post by retireIn2020 »

arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:42 pm
Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
the S&P500 isn't "the market". It's about 82% of the market.
I think you mean 80+ % of the US market, much less than that when you include All-World ex-US.
Last edited by retireIn2020 on Tue Jun 11, 2024 12:43 am, edited 1 time in total.
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Re: Extreme Concentration in the S&P 500

Post by airshow »

nisiprius wrote: Mon Jun 10, 2024 9:19 pm It doesn't bother me because the composition of those top stocks is constantly changing. You can see this from the fact that the nickname for them has to keep changing. It's not FANG any more, it's currently the "Magnificent 7," but there are already articles saying they are not so magnificent and any moment now there will be a new set and a new nickname.

Take a look at this video, Top 10 S&P 500 Companies by Market Cap (1980-2020) The whole video is three minutes long; see if you can dig in and watch the whole thing.
Awesome video; thanks for posting!
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Re: Extreme Concentration in the S&P 500

Post by Lyrrad »

Lawrence of Suburbia wrote: Tue Jun 11, 2024 12:25 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:37 pm
"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham
I've never understood this quote; what did he mean by 'weighing machine'?
I've interpreted it to mean that a) in the short term the total return of a stock is primarily based upon what other market participants believe it is worth and, b) in the longer term, more of the total return is based upon real measurements of how much the company made, or distributions to shareholders in the form of buybacks, dividends or payments upon being taken private.
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Re: Extreme Concentration in the S&P 500

Post by asset_chaos »

M* tells me that the top 10 of total world (vtwax) is 17% of the index. If the idea of the S&P 500 being "too" concentrated bothers/worries you (for reasons mentioned upthread it doesn't bother me), invest in stocks via a more broadly diversified index fund. If still worried, maybe it's time to sell some stocks and buy more bonds.
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Re: Extreme Concentration in the S&P 500

Post by Lawrence of Suburbia »

Lyrrad wrote: Tue Jun 11, 2024 1:00 am
Lawrence of Suburbia wrote: Tue Jun 11, 2024 12:25 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:37 pm
"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham
I've never understood this quote; what did he mean by 'weighing machine'?
I've interpreted it to mean that a) in the short term the total return of a stock is primarily based upon what other market participants believe it is worth and, b) in the longer term, more of the total return is based upon real measurements of how much the company made, or distributions to shareholders in the form of buybacks, dividends or payments upon being taken private.
Ahhh. Thank you, I finally get it.

In 'actionable' terms ... take the long view.
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Re: Extreme Concentration in the S&P 500

Post by nisiprius »

Lawrence of Suburbia wrote: Tue Jun 11, 2024 12:25 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:37 pm
"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham
I've never understood this quote; what did he mean by 'weighing machine'?
What Graham actually wrote is as follows, and it clarifies what he meant by "voting" and "weighing" machine:
In other words, the market is not a weighing machine, in which the value of each issue is registered by an exact and impersonal mechanism, in accordance with its specific qualities. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are partly the product of reason and partly the product of emotion.
and
The stock market is a voting machine rather than a weighing machine. It responds to factual data not directly, but only as they affect the decisions of buyers and sellers.
It seems clear to me what Graham meant. A "weighing machine," e.g. a scale in a grocery store, does not involve human judgement. You put the item on the scale and it registers a weight. On the other hand, Sir Francis Galton famously discovered that a crowd at a county fair accurately guessed the weight of an ox when their guesses were averaged. The collective expression of opinion was more like voting than actually putting an ox on a scale, yet when enough opinion data was aggregated, the collective opinion was accurate. This has been called "the wisdom of crowds."

Note that in his writings he actually said this twice. But neither time did he say anything about short or long term, and he did not say that it IS a weighing machine in the long term. The statement that it IS a weighing machine in the long term has not been found anywhere in his writings. Warren Buffett has said that he remembers Graham saying it.
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Re: Extreme Concentration in the S&P 500

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by airshow » Tue Jun 11, 2024 12:41 am

nisiprius wrote: ↑Mon Jun 10, 2024 9:19 pm
It doesn't bother me because the composition of those top stocks is constantly changing. You can see this from the fact that the nickname for them has to keep changing. It's not FANG any more, it's currently the "Magnificent 7," but there are already articles saying they are not so magnificent and any moment now there will be a new set and a new nickname.

Take a look at this video, Top 10 S&P 500 Companies by Market Cap (1980-2020) The whole video is three minutes long; see if you can dig in and watch the whole thing.
Awesome video; thanks for posting!
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Re: Extreme Concentration in the S&P 500

Post by Rocinante Rider »

Agree with all the great posted replies. Because I'm invested only in cap weighted total market index funds, it makes no difference whatsoever to me whether the top 10 companies A thru J fall to the bottom and get replaced by companies Q thru Z. It's no different than taking a bundle of cash out of my right, front pocket and moving it into my left, rear pocket. On the other hand, I would find it "disturbing" if I held only individual stocks, regardless of whether they were companies A-J or Q-Z. That's what's called an uncompensated risk.
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Re: Extreme Concentration in the S&P 500

Post by ryman554 »

arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:42 pm
Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
the S&P500 isn't "the market". It's about 82% of the market.
Isn't it more like almost 90% of the US market? https://etfdb.com/tool/etf-comparison/I ... /#holdings

If I do the math right, the ratio of the top holdings in SPY and (same holdings in ITOT) is ~87%. That implies a 87% ratio of SPY and 13% of "everything else"

Did I do the math right?
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Re: Extreme Concentration in the S&P 500

Post by muffins14 »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
Very disturbing seems problematic for you. You can:
1) invest in international stocks
2) invest in bonds
3) tilt to small cap value
4) invest in real estate
5) start a business or consulting type service
6) sell all your stocks and sit in cash until the 35% changes to a number that you are happy with, accepting that this is probably a bad idea but has some chance to make you feel good
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Re: Extreme Concentration in the S&P 500

Post by dbr »

To me it suggests that stock investing is risky.

If a person does not want to take that risk one should invest in other things and broadly depend on a range of sources for wealth and income. It could especially be that one should not depend on those same companies for both capital accumulation and career income.

PS I invest in the total stock market (not S&P 500 if it makes any difference) to the extent I want to take the risk and not more.
Last edited by dbr on Tue Jun 11, 2024 11:06 am, edited 1 time in total.
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Re: Extreme Concentration in the S&P 500

Post by bertilak »

nisiprius wrote: Mon Jun 10, 2024 9:19 pm Take a look at this video, Top 10 S&P 500 Companies by Market Cap (1980-2020)
Eye opening.

Keep it in mind whenever you hear that indexing will kill the market (or your portfolio) because it is top-heavy. Of course it's top heavy. That's the point and purpose of cap-weighted indexing. Put your money where the market is; it's the best way to get market returns (i.e. house odds). Anything else is speculating by betting against the house. House odds is something you can't get at Vegas.

Perhaps a definition of extreme is needed.
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Re: Extreme Concentration in the S&P 500

Post by Grt2bOutdoors »

retire2022 wrote: Mon Jun 10, 2024 9:21 pm I’m okay with VOO concentration

44% VOO
33% VGT
13% AAPL
7% cash

Portfolio at 3.1 million it will get larger faster
You are essentially running a quasi-tech sector portfolio. As you are comfortable with it, a VOO concentration is a non-event for you, imo.
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Re: Extreme Concentration in the S&P 500

Post by retire2022 »

Grt2bOutdoors wrote: Tue Jun 11, 2024 11:08 am
retire2022 wrote: Mon Jun 10, 2024 9:21 pm I’m okay with VOO concentration

44% VOO
33% VGT
13% AAPL
7% cash

Portfolio at 3.1 million it will get larger faster
You are essentially running a quasi-tech sector portfolio. As you are comfortable with it, a VOO concentration is a non-event for you, imo.
Thanks, life is good, and my AAPL up 27k intraday, and the portfolio finished 46k up at the close.
Last edited by retire2022 on Tue Jun 11, 2024 4:03 pm, edited 4 times in total.
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Re: Extreme Concentration in the S&P 500

Post by Kenkat »

I’m one of those slice and dice type people who overweight small and value. My top 10 stocks only make up about 15% of my equity holdings according to Morningstar Portfolio X-Ray. I just feel better avoiding (to a degree) these large concentrations in the largest growth stocks that seem to occur from time to time.
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Re: Extreme Concentration in the S&P 500

Post by Raspberry-503 »

The SP goes through cycles of being top heavy. Look up Nifty Fifty, the ancestor to the Magnificent Seven.
Buy and hold, don't try to time/guess the market.
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Re: Extreme Concentration in the S&P 500

Post by id0ntkn0wjack »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
Based upon your posting history, you seem very fearful in general and would likely benefit from an asset allocation that reduces risk.

Also, not everyone on this forum is a guy.
I moved 10% of my equities into BLV (Vanguard Long Term Bond ETF) in January 2021. Follow my advice at your own peril.
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Re: Extreme Concentration in the S&P 500

Post by arcticpineapplecorp. »

Lawrence of Suburbia wrote: Tue Jun 11, 2024 12:25 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:37 pm
"in the short term the stock market is a voting machine, but in the long term it is a weighing machine" --Benjamin Graham
I've never understood this quote; what did he mean by 'weighing machine'?
we don't know because he never wrote it down, and Buffett swears he originally heard Graham say it. You can read more here: viewtopic.php?t=77840

a selection of interpretations:
marco100 wrote: Fri Jul 08, 2011 8:55 am The value of the firm is the total of all future cash flows discounted to present value.

That's what is "weighed."

The market "votes" on what it thinks the company "weighs."
SVariance1 wrote: Fri Jul 08, 2011 8:19 am The sentiment is clear: short run price movements can be driven by factors other than fundamentals. In the long run, fundamentals are the key determinants of performance.
richard wrote: Fri Jul 08, 2011 8:27 am
This seems spot on. http://www.bogleheads.org/forum/viewtop ... 45#1106345

At any moment, the market could well be an irrational voting machine, but it tends to circle around true value. The intelligent investor takes advantage of that by buying during the market's depressed phase and selling during the market's manic phase. It is because in the long-run the market bounces above and below true value (i.e., be a weighing machine) that the intelligence investor is able to profit.

At the end of the day, I'm not sure it matters who actually said it. It's a great quote. Unfortunately, the number of people who are intelligent investors able to profit from the market's gyrations is incredibly small, so it doesn't really help us.
Verde wrote: Fri Jul 08, 2011 8:32 am I think part of the answer is that viewed day by day stock prices seem capricious, affected inordinately by sentiment, but in the long-run stock investors collect dividends, which makes up a major share of their return – dividends are real measurable (weigh) cash flows.
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Re: Extreme Concentration in the S&P 500

Post by arcticpineapplecorp. »

retireIn2020 wrote: Tue Jun 11, 2024 12:37 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:42 pm
Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
the S&P500 isn't "the market". It's about 82% of the market.
I think you mean 80+ % of the US market, much less than that when you include All-World ex-US.
good point, so even less for the OP to worry about if s/he's properly diversified across the planet.
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rule of law guy
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Re: Extreme Concentration in the S&P 500

Post by rule of law guy »

SPY strong. get with the program. if fed raises rates, sell SPY and buy ST treasuries. otherwise, steady as she goes, mate
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arcticpineapplecorp.
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Re: Extreme Concentration in the S&P 500

Post by arcticpineapplecorp. »

ryman554 wrote: Tue Jun 11, 2024 9:05 am
arcticpineapplecorp. wrote: Mon Jun 10, 2024 9:42 pm
Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. Having half of my investments in SP500 index, I find this very disturbing.

What do you guys think?

https://www.apolloacademy.com/extreme-c ... he-sp-500/
the S&P500 isn't "the market". It's about 82% of the market.
Isn't it more like almost 90% of the US market? https://etfdb.com/tool/etf-comparison/I ... /#holdings

If I do the math right, the ratio of the top holdings in SPY and (same holdings in ITOT) is ~87%. That implies a 87% ratio of SPY and 13% of "everything else"

Did I do the math right?
yeah, it looks like (according to https://www.etfrc.com/funds/overlap.php the S&P500 overlaps 87% with VTI). It used to be 82% so obviously it's gotten to be a bigger part of the total US stock market.

Still if we look at VT, the US total stock market makes up 61% of the world market. If VOO makes up 87% of VTI (which is 61% of total world) then VOO makes up :
.87 x .61= .53 or 53%, so VOO (in entirety) makes up 53% of the world market.

But the OP is talking about the top 10 stocks and the OP stated they made up 35% of VOO (true) but I added, only 25% of VTI (true too). Now we further diversify globally and we see the top 10 only make up...

17.1% of the total market (source: https://investor.vanguard.com/investmen ... omposition)

And one of them (one of the 10 largest companies in VT) is Taiwan Semiconductor, which isn't one of the top 10 companies in the S&P500.

So if you're more diversified globally, the top 10 stocks in the world just make up 17% of the fund, half as much as the original poster's concern about VOO's top 10 stocks comprising 35% of that fund.

Further if the OP had half his/her money in VT instead of VOO you'd see those top 10 companies would only comprise .17 x .50 = 8.5% of his ENTIRE portfolio.

Finally, if those 10 companies that make up VT would make up just 8.5% of his entire portfolio (because s/he's 50/50 stocks/bonds) then EACH OF those 10 largest companies in VT would make up (on average) LESS THAN 1% EACH OF THE OP'S ENTIRE PORTFOLIO.

So if any one of those companies went out of business tomorrow, it would result in a very small loss.

So maybe the problem is the OP is focusing on the S&P500 and not VT and also not appreciating the reduction of risk being 50/50 (at least the OP said 50% of his/her portfolio is in S&P500, s/he didn't say how the other 50% was invested).
Last edited by arcticpineapplecorp. on Tue Jun 11, 2024 1:13 pm, edited 1 time in total.
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Re: Extreme Concentration in the S&P 500

Post by Vulcan »

asset_chaos wrote: Tue Jun 11, 2024 1:36 am M* tells me that the top 10 of total world (vtwax) is 17% of the index. If the idea of the S&P 500 being "too" concentrated bothers/worries you (for reasons mentioned upthread it doesn't bother me), invest in stocks via a more broadly diversified index fund.
arcticpineapplecorp. wrote: Tue Jun 11, 2024 1:11 pm So maybe the problem is the OP is focusing on the S&P500 and not VT
This should be a sticky.
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Re: Extreme Concentration in the S&P 500

Post by unwitting_gulag »

Rocinante Rider wrote: Tue Jun 11, 2024 8:28 am Agree with all the great posted replies. Because I'm invested only in cap weighted total market index funds, it makes no difference whatsoever to me whether the top 10 companies A thru J fall to the bottom and get replaced by companies Q thru Z. It's no different than taking a bundle of cash out of my right, front pocket and moving it into my left, rear pocket. On the other hand, I would find it "disturbing" if I held only individual stocks, regardless of whether they were companies A-J or Q-Z. That's what's called an uncompensated risk.
It's "disturbing" for those of us who overweighted in small-cap or mid-cap, thinking (hoping?) that there's a long-term premium for holding smaller capitalization stocks. So yes, while the S&P 500 is rising, which constituents of the index do most of the rising, is irrelevant. What is relevant - and disturbing - is when the S&P 500 runs away from everything else, that "everything" being ex-US, midcaps and smallcaps.

Put another way, an S&P 500 investor wouldn't care if Microsoft rises while Exxon falls, and Ford stays steady... so long as the mix is rising. Later, Microsoft hiccups while GE comes roaring back... OK, fine. The index's leaders churn, while the index rises. No worries.

But if somebody decides to tilt, holding say 60% S&P 500, 20% Midcap-400 and 20% Russell-2000... then what matters is not whether Microsoft beats Exxon, but that the S&P keeps trouncing the Russell.

TLDR: I'm so [expletive] sick of small-caps lagging!
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Re: Extreme Concentration in the S&P 500

Post by Nicolas »

unwitting_gulag wrote: Tue Jun 11, 2024 1:27 pm TLDR: I'm so [expletive] sick of small-caps lagging!
Every dog has its day.
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Rocinante Rider
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Re: Extreme Concentration in the S&P 500

Post by Rocinante Rider »

Nicolas wrote: Tue Jun 11, 2024 2:18 pm
unwitting_gulag wrote: Tue Jun 11, 2024 1:27 pm TLDR: I'm so [expletive] sick of small-caps lagging!
Every dog has its day.
Yes, but the top dogs have their decade or longer.
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Re: Extreme Concentration in the S&P 500

Post by lws »

If your asset allocation is compatible with your goals and risk tolerance, the S&P is good.
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Re: Extreme Concentration in the S&P 500

Post by Boglegrappler »

If you look at the largest stocks in the S&P by market value, they also tend to be the largest in revenue and net income. There is some variation because one of the components of valuation is the market's growth forecast for the individual companies, but taken as a group the top companies have some combination of the largest revenues, largest net incomes, and highest growth rates. They also tend to produce high net returns on assets.

There are exceptions from time to time, but it really makes much more sense than you might think by reading the financial press.

You can learn a lot by looking at barcharts.com database which has all the S&P 500 index companies with a lot of metrics that you can sort by.
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Re: Extreme Concentration in the S&P 500

Post by Gaston »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index.
Not suggesting you alter your investment strategy. Just sharing a data point.

Vanguard’s Total World Stock ETF (VT) tracks the FTSE Global All Cap Index (GACI), which includes 10,091 companies worldwide.

At present, 9 of the top 10 constituents within the GACI are US companies. The tenth company is TSMC in Taiwan. The top 10 together represent 18.4% of the index. Without TSMC, the number is 17.7%

Also at present, US equities represent 62% of the GACI index. Hence VT currently invests 62% of its assets in US equities.
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Re: Extreme Concentration in the S&P 500

Post by UpperNwGuy »

Econberkeley wrote: Mon Jun 10, 2024 9:06 pm The top 10 stocks in the S&P 500 now make up a record-high 35% of the index. I find this very disturbing.
I don't find it disturbing. Why do you find it disturbing?
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