Every month, Stoic partner Freddy Forger writes a short column in FiscAlert, The magazine with the smartest money tips and therefore required reading for financial advisors and tax experts. Those who don't have a FiscAlert subscription can read the column here. This month, Freddy Forger explains why investors who, out of fear, reduce the total share of the seven largest companies in a global portfolio are taking a huge gamble.
Have you heard of the Magnificent Seven? These are the most innovative and profitable mega-corporations: Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Tesla, and Nvidia. Together, they currently represent a whopping 19% of the global stock market. Many passive investors who track the market by diversifying globally consider this too much "concentration": relying heavily on just seven companies seems very risky.
But that's just appearances: the revenue and profits of these companies continue to grow. More importantly, these aren't seven companies with seven activities in the traditional sense. They're involved in hundreds of different businesses, from cloud to chips, from e-commerce to entertainment. So, from that perspective, the "concentration" isn't so bad.
Investors who, out of fear, reduce the share of these seven companies in their global portfolios compared to their actual share are taking a huge gamble. If those companies fail, they're lucky. But if they don't, they'll realize significantly lower returns…
All things considered, it's not even a big deal if a Magnificent Seven company does fail. In a globally diversified portfolio, that market share simply goes to another company. So, if you invest globally, you automatically own those successors. So you don't have to predict who the next winners will be. That's precisely the advantage of globally diversified investing: it works with and without today's stars.
Door Freddy Forger
