Tech Giants Dominate Markets, But Diversification Still Key for Long-Term Investors
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The "Magnificent Seven" stocks (Microsoft, Apple, Amazon, etc.) accounted for over half the market's gains in 2023 and now make up 27% of the market.
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Market concentration is at its highest level in 50+ years, with tech stocks comprising 40%+ of market cap and the top 10 companies making up over 30%.
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While these tech giants have competitive advantages, history shows the largest companies by market cap tend to change over decades.
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Active managers can differentiate between the Magnificent Seven stocks based on business models, returns on capital, valuations, etc.
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Diversification beyond just the largest stocks has historically been rewarded over the long run as market leadership rotates.