Yesterday, Apple surpassed $3 trillion in market cap. That’s a lot of iPhones. Did you know that with $3 trillion you could own ALL of McDonald’s, Walmart, AT&T, Philip Morris, Berkshire Hathaway, Procter & Gamble, JPMorgan Chase, Starbucks, Boeing, Deere, and American Express combined? Notes Spencer Jakab in The Wall Street Journal’s “Heard on the Street” column, “A lot would have to go wrong all at once to torpedo that diversified group of blue-chip stocks.” Spencer continues:
Aside from the concentration risk, the rise of mega companies has been bad for stock returns in general. Apple and the other nine largest constituents of the S&P 500 comprise nearly 30% of its market value, well above the previous concentration peak seen at the height of the tech bubble before a brutal bear market.
Even if that doesn’t happen this time, owning any company that has mushroomed in value means it is hard for it to outperform for much longer without getting uncomfortably large. Dimensional Fund Advisors looked back over the decades to what happens to a stock that has joined the 10 biggest in the S&P 500. In the decade before getting there it has, on average, outperformed a basket of all U.S. companies by an impressive 10% a year. In the next 10 years, though, it actually has lagged behind the market by 1.5% a year.
Action Line: If you feel markets can be irrational (I do), then maybe you need a combat plan. Let’s talk.
