There are few things that are as mind-blowing a presence as the African elephant. One is to see an elephant walk out of the bush for the first time; another is to have one charge at you in fury. I’ve experienced the latter a few times, and each time you are transfixed in awe and terror. You feel so small and vulnerable locked in a car which an elephant has been known to crush with ease. Usually, he or she may charge your vehicle and stand over it flapping enormous ears, trumpeting and then backing off with a confidence that the warning was enough. Phew!
As you probably know, the elephant is part of sub-Saharan Africa’s Big 5, joining the lion, leopard, rhinoceros and African buffalo. They are members of that exclusive club which are on every tourist’s must-see list on a trip to the lower half of Africa, and visitors tend to pay a little more to make sure they do.
With tourism all but dead now, we can turn our attention to our own Big 5, the huge tech corporations that have been dominating the stock market these days. Apple, Microsoft, Amazon, Google, Facebook together are up around 35% for the year. The other 495 companies in the S&P 500 are down about 5% combined, dragging the whole index down to being up about 2% for the year.
It’s conceivable the performance of the Big 5 not only improves the performance of the all the indexes, but also provide a psychological boost. Their strength and presence could be giving traders (I’m not sure how many investors are really buying stocks at this point) the confidence they need to buy other companies. And waiting in the wings are the machine algorithms that stalk retail traders. Every move traders’ make, machines react quickly and efficiently, taking advantage of human emotion and our inability to react instantly.
If you don’t think or aren’t sure you own the Big 5, you probably do. They make up a huge percentage of most indexes and large cap stock funds and portfolios. For the past four months as well as the last decade the Big 5 have been responsible for most of the success your investment accounts have enjoyed.
Will the Big 5 continue to support and lead this level of growth for our retirement accounts? Will they continue to be the top holdings in millennial trading accounts as reported by Robinhood, Apex and others? Or is there an “Enron” in the bunch? Will regulators change their business models for them? Do they just become stable dividend stocks with unexciting but consistent growth? Jeff Bezos once told his employees that one day Amazon will fail, recognizing the impermanence of things.
As investors we must be mindful of this impermanence when we are planning and making investment decisions. Rather than chasing gains, be strategic and patient. The Big 5 are most likely strong sustainable companies, but they still have risks. This is NOT an unprecedented moment. History has shown us what happens time and again when there is irrational exuberance, a term coined by Alan Greenspan to describe mindless buying. It doesn’t mean we should hide in fear, it means we should not get caught in the gold rush. As Warren Buffet says, as an investor “you need a temperament that neither derives great pleasure from being with the crowd, nor against the crowd.”
Wealthcare Advisory Partners
The views in this material were those of the Advisor at the time of writing this report and may not reflect the views Wealthcare Advisory Partners LLC. These views are intended to assist clients and do not constitute investment advice. Advisory services offered through Wealthcare Advisory Partners. Wealthcare Advisory Partners LLC is a registered investment advisor with the U.S Securities and Exchange Commission.