Stock Market Dispersion

October 20, 2023

The number 1 thing I have seen from global fund managers this quarter has been the wax lyrical about the "Magnificent 7" and how they have driven stock market dispersion to insane levels as 7 stocks have generated almost all the return on the S&P500. (Magnificent 7 being Apple, Microsoft, Google, Amazon, Nvidia, Tesla and Meta).

There is an argument (that is incredibly weak in my view) by many managers that this dispersion should narrow. Okay, maybe definitely this is true to some extent, but seriously, why should it narrow permanently over the longer term?

Companies are not made equal and the winners do not share their piece of the pie, this is capitalism baby. We may strive for social equality but in business land, there is no such thing. In fact, profitability is largely limited to only the companies at the top, it is not shared. McKinsey is great at showing that the majority of value accrues at the top –

McKinsey chart showing value concentration at top companies

Equality is a myth. Some index constituents are more equal than others.

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