The Magnificent 7 Ride

29th April

Dear David,

Much has been made of the rise of the technology stocks and for financial journalists it is a story that gets recycled regularly. For years ago they were called FAANG stocks and now the Magnificent seven. Those of us raised on cowboy westerns remember this particular movie and have probably watched it on countless re-runs. So when Facebook changed its name they needed a new acronym and couldn’t resist the cliche. Maybe this explains why Jeff Bezos asked his barber for a Yul Brunner cut before Elon got there first.

On a serious note, you may be interested to know that the combined market capitalisation of these 7 companies would make them the 2nd largest Stockmarket in the world. Apple is bigger than the UK and Ndivia is now bigger than France. Analysts at Deutsche Bank DBX have worked out that revenue growth is the major contributor of returns to these 7 stocks *. This goes someway to explain the elevated premiums that investors are prepared to pay for them above those on the wider US stock market.

You and I have seen these stories play out over many years and so we expect the portfolio managers we engage with to provide a diversified portfolio across a broader range of stocks or funds.

Earlier this month residents of New York State were treated to the awesome spectacle of a total solar eclipse in the sky. One could say that the broader S&P 500 Stockmarket has been eclipsed by these so called Magnificent 7 in recent years, but these events have a short life when most of us are investing for the medium to longer term. If I paid 68 times earnings for a stock today then I may have to find someone dummer than me to turn a profit; and that might take some time.

By the way, the next solar eclipse in North America will be in 2044.

Ride on,

Max