On Bubble Watch

Citations · 6

• “the market capitalization of the seven largest components of the S&P 500 represented 32-33% of the index's total capitalization at the end of October; that percentage is roughly double the leaders' share five years ago”

  p#7 · confidence 95%

• “prior to the emergence of the "Magnificent Seven," the highest share for the top seven stocks in the last 28 years was roughly 22% in 2000, at the height of the TMT bubble”

  p#9 · confidence 95%

• “At the beginning of 2024, however, only six of them were still in the top twenty... Importantly, of today's Magnificent Seven, only Microsoft was in the top twenty 24 years ago.”

  p#82 · confidence 95%

• “when people bought the S&P at p/e ratios in line with today's multiple of 22, they always earned ten-year returns between plus 2% and minus 2%”

  p#109 · confidence 90%

• “a bubble not only reflects a rapid rise in stock prices, but it is a temporary mania characterized by – or, perhaps better, resulting from – the following: highly irrational exuberance, outright adoration of the subject companies or assets, and a belief that they can't miss, massive fear of being left behind if one fails to participate ('FOMO'), and resulting conviction that, for these stocks, 'there's no price too high.'”

  p#13 · confidence 95%

• “prior to two years ago, there were only four times in the history of the S&P 500 when it returned 20% or more for two years in a row. In three of those four instances, the index declined in the subsequent two-year period. (The exception was 1995-98, when the powerful TMT bubble caused the decline to be delayed until 2000)”

  p#96 · confidence 92%