Archive Category: Green Zone Fortunes Updates

Right now, the 10 largest stocks by market cap in the S&P 500 account for more than a third of the index by weight. And the top 10% of stocks in the index carry more weight than the bottom 90%. That’s a remarkable amount of concentration in mega-cap stocks — at a level we haven’t really seen since the dot-com bubble of the early 2000s. From one perspective, investors’ preference for these popular mega caps makes some sense.

In 1984, communications scholar Walter Fisher introduced what he called the “narrative paradigm.” Fisher argued that humans weren’t exactly rational, number-crunching decision-makers like most scientists believed at the time. Instead, we’re storytellers. We rely not just on facts and logic, but on narratives and stories to understand the world around us. These narratives can be powerful learning tools — but they can also limit the way we see the world. As the old joke goes: “Never let the facts get in the way of a good story.”

ChatGPT went live in November 2022 — and the artificial intelligence boom immediately took the world by storm. Tech stocks from all over the market were suddenly reevaluated based on their potential to take advantage of the emerging mega trend. Shares of NVIDIA Corp. (Nasdaq: NVDA) more than tripled so far in 2023 as a result. But it’s important to remember that this massive trend is still in its infancy.

In life and investing, it’s important to know “who you are,” and what you stand for. Part of that journey also involves probing the inverse — that is, knowing who you are not, and what you won’t do. I’ve always been hesitant to criticize investment strategies that I don’t follow. Just because I don’t try to make money with a particular methodology doesn’t mean it’s objectively bad, or that other investors can’t make it work for them. There won’t be “trash talk,” here.

The idea is that by owning two stocks, each of which offers an 8% average annual return, but are uncorrelated … you can earn 8% a year, but with less volatility than if you’d simply bought just one of the stocks. Same return, less volatility — that’s the “free lunch.” But what no one will tell you is this: You’ll never get wealthy if you’re too diversified. A highly diversified portfolio is great if you’re already wealthy and want to stay that way. No single investment can sink your battleship.