Not long ago, I wrote about the Great Stock Concentration of 2024. More specifically, I wanted to showcase the intense concentration happening within the largest companies while everything else dropped lower. If I may, I’d like to take a quick victory lap: since I wrote that post the small cap index is up 10% and the overcrowded stocks are down some 5%.

The purpose of my post was to highlight the intense investment concentration in popular names like NVIDIA and Microsoft. By all measures, this crowded investment has reached historically extreme levels. I’d now like to expand on how this trend is the antithesis of America’s foundational, free thinking, do things differently spirit. Meaning, the sheer spirit of the investment community has to change in order for this trend to continue. For markets to move away from crowding into the same 5 names and exploring the 2,000+ other publicly traded companies out there, the investment community needs to rethink its individualism.

For those of us who consider ourselves stock pickers – like me, now is a rather important time to reawaken this American spirit. In-fact, it is rather interesting to me to have seen some of the stock pickers who I grew up with totally revert to trend following in the same similar names.

All of this is rather ironic considering America is founded on individualism and free thinking, not following the crowd. In fact, going against “groupthink” embodies the American state of mind, as it fosters creativity and innovation. Look no further than Steve Jobs to see this spirit embedded in his wildly successful company that has reshaped technology and markets. Literally, think different.

As I write this post today, I wonder if this spirit is rising from the ashes throughout markets. If it is, the journey ahead will be long and challenging, but I am prepared. I’ve shared a chart below to illustrate this in more detail.

The chart below compares 2,000 small-cap companies (the Russell 2000 index) to the Nasdaq-100 (100 large cap companies). How should you read this chart? It’s rather simple: when the Nasdaq outperforms small caps, the chart declines; when small caps outperform the Nasdaq, it rises. A quick glance at the below chart reveals the current leader – large cap tech – for what seems like 10+ years now.

Notably, the ratio is now at its lowest since the DotCom Bubble. It’s always fascinating to observe how “price has memory” and that the recent surprise rally in smaller cap names happened at similar levels.

We’ll see what happens next, and I’ll be watching closely. I’ll be updating my blog continually here.