TOPIC • 4 CLAIMS
Concentration
How much of an index, a return, or a portfolio rests on how few names.
HOWARD MARKS/
He notes how narrow the market’s dependence on one theme has become.
- AI stocks accounted for 75% of S&P 500 gains, 80% of profits, 90% of capex
HOWARD MARKS/
His aside on concentration inverts the usual complaint: the seven biggest names are not what makes the index expensive, because their multiples look defensible against their moats and margins — it is the multiple on everything else that he finds worrisome.
- a bit over half of the S&P 500’s 58% two-year total return in 2023-24 came from seven stocks
- those seven have grown to about one-third of the index’s total market value
- their p/e ratios average roughly 33
- the other 493 companies average a p/e of 22, against a mid-teens historical average for the index
- Nifty-Fifty stocks were selling at p/e ratios between 60 and 90 in 1969
HOWARD MARKS/
Concentration is the fact he leads with, and it now exceeds the peak of the bubble he wrote about 25 years earlier.
- the top seven were 32-33% of S&P 500 capitalization at the end of October
- roughly double the leaders’ share five years earlier
- against a prior 28-year high of roughly 22% in 2000
- US stocks over 70% of the MSCI World Index, the highest since 1970
HOWARD MARKS/
A multiple in the 30s is a bet on persistence, and the churn in his own tables suggests change is more the rule.
- Nvidia at a forward multiple in the low 30s, double the post-war S&P average of roughly 16 but cheap against the Nifty Fifty
- only six of the top twenty S&P companies of early 2000 were still in the top twenty in early 2024
- of today’s Magnificent Seven only Microsoft was in that 2000 top twenty
Claims are restated; figures are the authors' own. Each links to the document it came from, which in turn links to the original in full.