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Doom scrolling and the next financial crash!
Comments
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Small Cap Indexes tend to have lower tech percentages than whole equity market indexes and so right now I'm pro them.
US Vanguard Small Cap Index (VSMAX) has 14% tech while US Vanguard Total Market Index (VTSAX) has 40% tech. I'm far less interested in the historical comparison between small cap and large cap where tech has been a smaller factor. The conversation over small vs large is old and ongoing, but the current bias of large cap indexes to tech is new and potentially very disruptive.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
I haven't looked into it, but it would not surprise me if large caps have a tendency to be more concentrated in the latest craze in the past as well as the present.
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The current level of concentration last happened in the mid-1960s:
The 1960s giants did indeed underperform, but the S&P 500 as a whole boomed. The former leaders were replaced with rapidly growing new leaders. If you had managed to sell the giants at their peak and buy the rest of the index, you would have done better. Many people have been under-weighting the US for a long time, and it has cost them dear. You have to get the timing right. As far as I know, there is no S&P 500 minus the tech giants index that we can invest in, even if we are gifted with miraculous timing.
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Interesting that it was that long ago, and that those 1960s giants were much less inter-related.
But I don't see that the S&P500 as a whole boomed as they declined...
Between June 1965-1975 the S&P index as a whole was flat in nominal terms, but cumulative inflation* was 70%, leading to a savage loss of purchasing power in real terms.
After that lost decade came a second decade, where the price index "grew" 115% over the full 20 year period, but CPI had risen by 240%. I make that 3.9% annualised price growth vs 6.3% annualised inflation.
The chart in your link is the price index, so this ignores dividends, but nevertheless does not look like a good time to be invested in equities, particularly US equities.
*Source: fred.stlouisfed.org/series/CPIAUCSL
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Here is the big story in mathematics for anyone who thinks that AI is useless:
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Certainly a cautionary tale for anyone pasting their manuscript drafts into their LLM of choice.
So around $15m spent to take it across the line. Certainly worth it for some hard problems.
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But I don't see that the S&P500 as a whole boomed as they declined...
They wrote:
"These companies represented almost half of the index at the starting point, and many remained in the index, performing poorly over the next 60 years. It might seem likely, therefore, that the subsequent performance of the S&P 500 would also be disappointing. However, the opposite was true — albeit after a rocky start.
S&P 500 performance, June 1965 to June 2025"
They are taking a longer perspective than you. You could say that S&P and Vanguard are biased in favour of market weighting. Vanguard cannot deviate much anyway with $12 trillion to invest. Today's largest companies will not always be the largest companies, but nobody knows when they will be overtaken. How many predicted the rise of Nvidia? Not me.
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They roughly halved in weighting through to 1980, by which point their influence on the broader index would have significantly waned. The risk is associated with the extreme high concentration. In the 1960s that did indeed foreshadow a bad time for markets.
I don't think it is plausible that a bubble popping (or indeed more slowly deflating) would depress a market for 60 years, and for that reason anyone who has that sort of investment horizon probably shouldn't fret. But a 20 year blast radius could be problematic for those who wouldn't be around when the good times finally returned.
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You don't need to explicitly exclude tech. I've moved from a US Total Market Equity Index with 40% tech to a value index with under 10%. You could do something similar with a Dividend Stock Index. ie you are moving away from really high growth companies and that disproportionally removes tech. That will have consequences and de-emphasizing might not be a good idea for young people, but for the nervous among us we might want to move some eggs from the very large tech basket. It's just rebalancing. I've never been a momentum investor and now my Indexing strategy has turned into that.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Technology is currently 31.6% of the global equity market:
I do not believe that technology is facing wipe out. If it lost two thirds of its value, that would just knock the market back one year. I believe knocking out all the growth stocks is an over reaction. I believe in diversification. I am content with an average performance and very low costs.
I believe that there are greater worries. War, inflation and climate change for starters. The whole market is grossly overvalued by historical standards. A mighty crash is likely, but people have been saying that for as long as I can remember.
As far as I am concerned, it is easy come easy go. I have ridden the market up, and I can ride it back down again. I am not going to run out of money. Far worse things could happen to me, and eventually will.
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