To those caught in the still-inflating “Magnificent Seven” tech stock bubble, it’s a worthy endeavor to remember there are 493 other potential equities to invest in within the S&P 500 (^GSPC).
Industrials, healthcare, and more are there for the picking!
And outside of the S&P 500, there could be great investing opportunities in private equity, Treasurys, and hey, maybe even classic cars, if that’s your thing.
Put it all together, and this is what’s known as diversification — a tried-and-true wealth-building approach tested by millionaires and billionaires alike, life and business strategist Tony Robbins touted.
“I would just say maintain diversification. We all heard it a million times,” Robbins told Yahoo Finance at its New York City headquarters (see video above).
The six-foot-six author, who recently released “The Holy Grail of Investing,” says it’s a reminder served up by longtime friend and vaunted investor, hedge fund billionaire Ray Dalio. By diversifying, an investor can better reduce correlations between investments — and bring down the potential risk.
Known for his ultra-high-energy seminars, Robbins, who has a reported net worth of more than $600 million, warned against the AI hype bubble.
“I am concerned about it as well,” Robbins said about investors’ infatuation with Magnificent Seven names such as Nvidia (NVDA) and Microsoft (MSFT).
The diversification reminder couldn’t come at a better time as the Magnificent Seven trade has become hyper-correlated and is mostly moving in a singular direction — up and to the right.
The Magnificent Seven now makes up some 30% of the S&P 500’s market cap, in part powered by a hearty reaction to AI chipmaker Nvidia’s earnings report a week ago. Said market reaction has Wall Street analysts tripping over themselves to ratchet up profit forecasts, essentially feeding more upward momentum in the group’s stock prices.
During the past three months, Magnificent Seven earnings estimates have been revised higher by a lofty 7%, with its margins going up by 86 basis points, said Goldman Sachs strategists.
The average Magnificent Seven stock is up 14% this year, according to Yahoo Finance calculations. Nvidia has led the way with a 60% advance, while Tesla (TSLA) has dropped 23%.
Over the past year, two of the Magnificent Seven companies have seen triple-digit-percentage gains — Nvidia at 239% and Meta (META) at 184%. The S&P 500 is up a very respectable 29% during that time.
Some on the Street are finally beginning to call a timeout on the Magnificent Seven, with reasonable explanations that a reasonable investor should ponder.
“Elevated expectations and concentrated positioning create a high bar for the Magnificent 7 to beat,” strategists at JPMorgan Asset Management contended in a new client note. “AI will be investable for the long-haul and its beneficiaries will include far more than chipmakers.”
They added that a soft economic landing and declining interest rates later this year stand to “bode well for a catch up” by sectors and companies left behind in last year’s rally.
An argument could be made that not every Magnificent Seven member delivered blowout fourth quarters and outlooks to justify their stock’s near-record valuation.
Apple’s (AAPL) performance in China was weak. The March quarter guidance was weak. iPhone sales didn’t wow.
As for Alphabet (GOOG, GOOGL), it missed estimates on ad revenue, the core of its business. Tesla’s quarter and its Elon Musk-led earnings call were littered with red flags.
Microsoft’s quarter poked a hole in the narrative — in the near term — that all its AI efforts are going to lead to a massive reappraisal of its earnings estimates by the Street. Stripping out the announcement of its first-ever dividend, Meta’s quarter was okay — but it also jacked up its 2024 capital expenditures a ton, which could weigh on margins and cash flow.
The quarters out of Amazon (AMZN) and Nvidia have been universally seen as huge.
“I’ve done everything in my life by saying success leaves clues. Find the best in the world. Figure out exactly what they do, do the same thing, and your chances of success go up a hundredfold,” Robbins said.
The best investors in the game stay diversified — and not by buying seven tech companies that, at times, compete for the same customers.
Give it a thought.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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Source: finance.yahoo.com