I am absolutely thrilled that there is a wave of investors making a splash about the return of stock picking. As many of you know, it feels like I have been pounding the table on this for two years now. Everyone has been piling into the S&P 500 endlessly, buying the same three stocks (NVIDIA, Apple, and Microsoft) and not doing much thinking themselves. Finally, that appears to be changing.
Before I explain why that appears to be changing, let me first say that I believe the current state of investing in America is becoming wildly lazy and the antithesis of what America stands for. Investors all over are quite literally automating their flows into the same exact stocks within every index and ETF imaginable! For example, here are the top 10 holdings and their respective weightings in the S&P 500 and Nasdaq-100 indices are as follows, which many think are fundamentally different indexes:
S&P 500:
| Rank | Company Name | Ticker | Weighting |
|---|---|---|---|
| 1 | Apple Inc. | AAPL | 6.86% |
| 2 | Nvidia Corp | NVDA | 6.51% |
| 3 | Microsoft Corp | MSFT | 6.27% |
| 4 | Amazon.com Inc. | AMZN | 4.10% |
| 5 | Meta Platforms, Inc. | META | 2.65% |
| 6 | Tesla, Inc. | TSLA | 2.30% |
| 7 | Alphabet Inc. Class A | GOOGL | 2.24% |
| 8 | Alphabet Inc. Class C | GOOG | 1.85% |
| 9 | Berkshire Hathaway Inc. | BRK.B | 1.62% |
| 10 | JPMorgan Chase & Co. | JPM | 1.32% |
Nasdaq-100:
| Rank | Company Name | Ticker | Weighting |
|---|---|---|---|
| 1 | Apple Inc. | AAPL | 8.81% |
| 2 | Microsoft Corp | MSFT | 6.80% |
| 3 | Nvidia Corp | NVDA | 6.51% |
| 4 | Amazon.com Inc. | AMZN | 4.10% |
| 5 | Meta Platforms, Inc. | META | 2.65% |
| 6 | Tesla, Inc. | TSLA | 2.30% |
| 7 | Alphabet Inc. Class A | GOOGL | 2.24% |
| 8 | Alphabet Inc. Class C | GOOG | 1.85% |
| 9 | Broadcom Inc. | AVGO | 1.62% |
| 10 | Costco Wholesale Corp. | COST | 1.32% |
These weightings reflect the significant similarities of major technology companies within both indices. This is not diversification. This is not even creative thinking. This is literally just doing the same thing.
America is built on free spirit. Bold thinking. Big risks. And going after it. Doing the research, planning, thinking through hard problems, and then solving that hard problem. I have countless posts on my blog about this. Stock picking, market breadth, and finding and backing the next big thing is what builds a great country from within its capital markets.
I am a firm believer that we need our markets to get back to that focus, and the indexes are not doing it any more. The S&P 500 and Nasdaq-100 and other indexes and ETFs like it are about as lazy as they’ve ever been, piling into the same stocks and giving them a free pass, endlessly buying no matter what the management does or says. Apple has a PE ratio of 35 and isn’t even growing any more. Microsoft nearly has a PE ratio of 40.
Now, why do I think stock picking is finally back? Stanley Druckenmiller, the legend, said it best with these notes from his recent interview:
General Market and Economic Insights:
- From Anti-Business to Pro-Business: Observes a shift from the most anti-business administration to the opposite, creating optimism.
- CEO Sentiment: CEOs on the ground are giddy about the changes.
- Complicated Markets:
- Despite economic positives, we are experiencing one of the most unattractive earnings yields to bond yields in 20 years.
- He emphasizes focusing on individual stocks rather than overall markets.
- Read the above note again!
Positions and Investment Strategy:
- Equity Positions:
- Holding a mix of long and short equities but not fully invested due to highly rich valuations.
- Treasury Shorts:
- Still short treasuries, comparing it to being in the “7th inning,” with potential money to be made in the 7th-9th innings.
- Not increasing the position size but remaining short.
- Deregulation and Private Markets: Expects massive change in private markets driven by deregulation.
- Read this again!
Inflation and Fiscal Concerns:
- Inflation Expectations: Continues to expect inflation pressures.
- Fiscal Problems:
- Interest expenses are over 100% of government revenues, creating a huge fiscal issue.
- Deficit at 6.3% of GDP, approximately $1.9 trillion.
- Spending and private savings issues remain significant challenges.
- Interest Expense: A growing elephant now surpassing defense spending and social security.
AI and Innovation:
- Belief in AI:
- A huge believer in AI and innovation.
- Predicts AGI (Artificial General Intelligence) by 2035.
Crypto and the Fed:
- DOGE Skepticism: Expressed some hope in DOGE but feels too old and cynical to expect major change.
- Fed Rate Cuts:
- Criticized the Fed for cutting 100bps with a hot economy and high animal spirits.
Commentary on Scott Bessent:
- Praises Scott Bessent as big-brained, thoughtful, and deeply knowledgeable about markets in 40 countries and the fiscal situation.
- Notes that Bessent has inherited a HUGE problem with the current fiscal environment.
That’s all for now.