The “magnificent seven” are Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Also can include Netflix.
Questions:
They are mainly why the S&P 500 has done so well. Why is this? Will it continue? Should you invest? Or should youtime the market by staying out when prices are high, and get back in when they revert to lower trend prices?
Performance:
The Magnificent Seven have fundamentally driven the rally in the S&P 500, accounting for about 28% of its market cap, 19% of its profits, and 11% of its revenue. Their high profit margins contribute to this significant influence.
Future Outlook:
Ramin thinks these companies are likely to continue their dominance due to their innovative products and services, substantial revenue and profit generation, and global appeal.
Valuation Perspective:
A critical analysis based on Aswath Damodaran's valuation models (I know The Dean of Valuation from Simply Wall Street) suggests that most of these companies are priced reasonably in line with their fundamentals, except Nvidia and Microsoft, which appear overvalued - probably because they are at the epicentre of the AI Revolution.
Investment Strategy:
So no reason to avoid these giants. Very difficult for us amateurs to move in and out and back into the market in a way that beats the index.
Instead, carry on investing as their success and fundamental strengths will continue to make us shareholders money, at least for the next 2, 3 or 5 years.
Answer:
Stick with the world index by market cap.
