Quants are lacking these days - a few notes. pls fix
> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
Notice how the top stocks suddenly began making insane profit growth after march of 2023? GPT-4, arguably the biggest leap in AI actualization, released on March 14th, 2023. I assume that is when these largest companies (Apple, NVIDIA, Microsoft, Amazon, Meta, Google) started gaining crazy investment for data/AI/processing hardware.
I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.
Can’t wait for the stock market to crash beyond recovery and people shifting to buying up land and real estate, making living expenses skyrocket (again).
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
This is the expected outcome in capitalism. The general flow is money -> commodities -> greater money, and while it's not zero sum eventually that flow necessarily concentrates the money into entities that have the most money.
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
As someone who knows very little about finance, is there any ETF available which acts as a middle-ground between market-cap weighted and equally-weighted funds? The very high concentration of tech and AI in the S&P 500 at the moment makes me uncomfortable, but equal-weight seems too drastic to me. A fund where the weighting is done by the square root of the market cap feels like it would make sense but I can't find anyone doing this.
I sold all my S&P 500 holdings and the majority of my US stocks a while back to diversify internationally. Being so heavily concentrated in US markets felt too risky at the time, so I pivoted to investing in funds, companies, and markets around the world instead
I've been rolling a 5 quantity long @ES since 2022. It hit stop once, made 30%, lost 10%, I waited for the next contract, entered again it just keeps printing. I intend to keep going for decades. Should have started earlier.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
Am I reading the chart wrong, or does it show that the S&P500 ex-top 10 stocks increased by 20% over 3 years? That would be a historically average and very reasonable return.
For those worrying about concentration ... the market can get even more concentrated than it is now. In the 1880s, 80% of the market was related to railroads. That concentration always mean reverts, but it could take some time.
It's unclear from the "post" (what is it with these blogs where entries are like 3 sentences??): did they take current top 10 stocks and project their retuens backwards, or did they look at the retuen of always holding the top 10 stocks in the index?
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.
19 comments
[ 1.8 ms ] story [ 758 ms ] thread> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
It’s gonna be a mood.
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
https://youtu.be/VZMFp-mEWoM?si=ebdSU-W59KX5G0Qu
Nvidia, Microsoft, Apple, Alphabet/Google, Amazon, Meta/Facebook, Broadcom, Tesla, Berkshire Hathaway, and Walmart.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.