Outside of the top stocks, S&P 500 forward profits haven't grown in 3 years(insight-public.sgmarkets.com)
insight-public.sgmarkets.com
Outside of the top stocks, S&P 500 forward profits haven't grown in 3 years
https://insight-public.sgmarkets.com/quant-motion-pictures/outside-of-the-top-10-stocks-sp500-forward-profits-haven-t-grown-in-three-years
105 comments
Meta's profit has increased almost 2x since 2023. Meta makes money from advertisers spending money on Meta. So the profit growth from Meta does very much come from the real economy
It comes from the real economy in the sense that it is money they could be spent on something productive, but was instead wasted on ads.
In a video I watched recently there was a breakdown of how much a plumbing company had to spend on "marketing" (aka: Google ads placement, Facebook/Instagram) to attract customers and their per-click pay was about 60 USD, they were spending around 16-18k USD per month on online ads to keep the business afloat.
I had no idea that physical small businesses like that needed to spend so much on marketing just to be found.
I had no idea that physical small businesses like that needed to spend so much on marketing just to be found.
The very first thing you discover as a business owner managing cashflow is how hard you must work to get customers versus to provide a service.
Its worse if you get bombarded with negative reviews, which is why stuff like yelp holding you hostage is so bad. If you own an independent business outside of marketing, your reputation is everything. Especially now that anyone can blast your name because they didnt like how you said shiboleth or whatever.
So if you have a zillion negative yelp reviews, which you have no idea where they came from, since there's more negative reviews than you've ever had customers, but they want your money to hide them. ;)
So if you have a zillion negative yelp reviews, which you have no idea where they came from, since there's more negative reviews than you've ever had customers, but they want your money to hide them. ;)
Have to seems like a strong phrase. I found my last plumber and window guy on a facebook neighborhood group. Local ads for general services can be quite expensive, but doing some marketing through local groups only costs your time. I can see how driving business though clicks is attractive, but I'd be surprised if there was no alternative.
Have to if you want to scale the business, if you are a sole trader doing small gigs it's probably very achievable to only use local groups. If you rely on people searching for "plumbers in <X> city" while running a small business with some 5-10 folks I don't think you'd get enough work.
You don't want to use a plumber that has scaled their business. That means that they're sending out a new hire to do your plumbing rather than the plumber that originally built the company's reputation.
The best plumbers spend $0 on advertising. They've got enough business through repeat customers and word of mouth to keep their small set of plumbers busy, and they're expanding slowly enough to properly train apprentices and ensure quality.
The best plumbers spend $0 on advertising. They've got enough business through repeat customers and word of mouth to keep their small set of plumbers busy, and they're expanding slowly enough to properly train apprentices and ensure quality.
And, as a customer, you find that plumber how? What about when they tell you they'll be available 2 months from now for a 1 day service?
When I needed an emergency water heater I asked my boss who manages a few of his rental properties. When I needed a new roof I asked one of Facebook/Reddit/Nextdoor. I’d always favor word of mouth recommendations vs advertising.
You find the plumber by asking your local network. Neighbors, etc.
That's great for already establish plumbers, not for new ones.
> In a video I watched recently
Macy with Morning Brew ?
https://www.youtube.com/watch?v=ucWsaVbEu78
Macy with Morning Brew ?
https://www.youtube.com/watch?v=ucWsaVbEu78
Exactly that one, couldn't remember at the time I posted, thanks!
> they were spending around 16-18k USD per month
Unfortunately, this doesn't mean too much without knowing the size of the business.
Unfortunately, this doesn't mean too much without knowing the size of the business.
Ads are a necessary matching method in capitalism, there is no better alternative unfortunately.
I don’t think this is true, but I also don’t know anybody way to verify it either way. Enthusiast forums were always a better source, although native ads can mess that up.
But, even if ads are a necessary evil, they are definitely overhead (in the sense that they don’t actually accomplish anything, just influence the decision as to what should be done). Maybe we can define some sort of ad-efficiency metric for an economy; what percentage of the money is spent influencing decisions, what percentage is spent actually implementing the decisions…
But, even if ads are a necessary evil, they are definitely overhead (in the sense that they don’t actually accomplish anything, just influence the decision as to what should be done). Maybe we can define some sort of ad-efficiency metric for an economy; what percentage of the money is spent influencing decisions, what percentage is spent actually implementing the decisions…
Here is a longer version of my thinking: https://news.ycombinator.com/item?id=44714407
I don't know if that's quite right. A nice business directory would probably be better but most people don't want to settle for that.
Here is a longer version of my thinking: https://news.ycombinator.com/item?id=44714407
Nah I don't think the directories need to be reviewed (except for listings for things that don't actually exist.) Just show the listings in lexicographic order like how phone books worked.
We already have the law as the meta norm. Let law enforcement do its job.
We already have the law as the meta norm. Let law enforcement do its job.
Who is making the directory?
Is it public like Wikipedia? How do you decide which businesses are notable enough?
Is it the government? Of which country?
Can anyone submit without approval? It would get spammed to ruin.
Etc etc.
Is it public like Wikipedia? How do you decide which businesses are notable enough?
Is it the government? Of which country?
Can anyone submit without approval? It would get spammed to ruin.
Etc etc.
>How do you decide which businesses are notable enough?
Are the a non-duplicate business selling something
>Is it the government? Of which country?
It doesn't matter
>Can anyone submit without approval?
As long as your submiting information about a non-duplicate business that's selling something.
>It would get spammed to ruin.
As long as its deduplicated no one would care.
Are the a non-duplicate business selling something
>Is it the government? Of which country?
It doesn't matter
>Can anyone submit without approval?
As long as your submiting information about a non-duplicate business that's selling something.
>It would get spammed to ruin.
As long as its deduplicated no one would care.
Right around the time Meta stopped setting 100's of billions a year of cash on fire in the metaverse and pivoted to Ai.
I thought Meta put a total of maybe 30Billion in Metaverse?
A lot of wasted money but not 100B++
A lot of wasted money but not 100B++
Reality Labs is still a thing, they’re still working on VR/MR.
To open-sourcing AI models though, no?
To pay $100mil to ai devs.
I have a theory that Meta execs was so focused on the Metaverse that the Ai team succeeded thanks to the lack of supervision and interference from above - there was probably a board discussion between 2019 and 2022 about firing them all and just focusing up the Metaverse stuff becuase they were dead weight on the core mission of colonizing the Metaverse.
Turns out the Ai team was the lifeboat to save the drowning Metaverse.
I have a theory that Meta execs was so focused on the Metaverse that the Ai team succeeded thanks to the lack of supervision and interference from above - there was probably a board discussion between 2019 and 2022 about firing them all and just focusing up the Metaverse stuff becuase they were dead weight on the core mission of colonizing the Metaverse.
Turns out the Ai team was the lifeboat to save the drowning Metaverse.
In my experience success of a project is inversely proportional to executive attention. The best thing seniour leaders can do is to get out of the way.
Meta has been investing in AI for more than a decade
Longer than that, for sure. They were deploying ML systems at least as far back as 2011.[0]
[0] https://en.wikipedia.org/wiki/EdgeRank
[0] https://en.wikipedia.org/wiki/EdgeRank
And yet their quaterly and annual reports dont mention it at all till 2022 and the team are now being "helped out" by new $100mil talent.
There is an amazing team there that did the work, I am just saying it wasnt the visionaries vision that made that happen - and if it was they certainly wouldnt have let the Ai team publish or opensource their work.
There is an amazing team there that did the work, I am just saying it wasnt the visionaries vision that made that happen - and if it was they certainly wouldnt have let the Ai team publish or opensource their work.
Meta is also a great example of AI leading to higher user engagement today.
Reels isn't powered by Transformers per se (likely more of a complex mix of ML techniques), but it is powered by honest-to-goodness SOTA AI/ML running on leading-edge Nvidia GPUs.
I think, because they're so impressive, people assume Transformers = AI/ML, when there's plenty of other hyperscale AI/ML products on the market today.
Reels isn't powered by Transformers per se (likely more of a complex mix of ML techniques), but it is powered by honest-to-goodness SOTA AI/ML running on leading-edge Nvidia GPUs.
I think, because they're so impressive, people assume Transformers = AI/ML, when there's plenty of other hyperscale AI/ML products on the market today.
What if a lot of that advertising is from AI companies that are likely to fail in any downturn - didn't advertising drop fairly sharply during at the end of the dot-com bubble?
month old but https://www.wheresyoured.at/the-haters-gui/ made this argument - that a lot of that profit was just recirculation between these companies
Ive had this theory about the US economy for a while. There's mover, and makers. The movers just move money around, making nothing productive. The makers are what actually construct the world we live in and the services we use.
The US has a lot of movers, not enough makers. Our GDP is essentially propped up by fake jobs that do nothing. Of course we are a service economy, but a lot of this isn't even services, it's just move thing A to thing B then move it back and make money doing that. It would make sense if we're physically moving stuff - but we're not. We're just moving money back and forth.
The US has a lot of movers, not enough makers. Our GDP is essentially propped up by fake jobs that do nothing. Of course we are a service economy, but a lot of this isn't even services, it's just move thing A to thing B then move it back and make money doing that. It would make sense if we're physically moving stuff - but we're not. We're just moving money back and forth.
What do you mean recirculation? Isn’t the money flowing mostly in one direction (to Nvidia)?
well there's also openai and Microsoft, paying for cloud compute to run things. I think it could have a few round trips around. Nvidia is where it seems to all end up though yes
I have had this pet theory for a decade+ that this is the case for most of the economy, and the current "recirculative bubble" is just a really strong example of it happening in a tighter loop than usual.
Think about the classic economics fairy tale of why income redistribution is bad ("inefficient") and trickle-down economics is good.
Billionaire Bill buys his 10th yacht. Workers need to manufacture the yacht and all the different parts of it. He needs to hire staff to keep it clean, to maintain it, to operate it, and to stock the fridge; he needs to pay for satellite internet so he can do business on the yacht; and he needs to buy TVs for the kids. All of that stuff is produced by other businesses with their own employess and sometimes independent contractors. So all of this economic economic activity results in a flow of income to a large number of individuals. Those individuals then themselves all need to buy groceries, clothes, housing, transportation, etc. so all that income then continues to flow outward throughout the economy. The price system orchestrates everything so that the proceeds from Billionaire Bill's yacht are used to provide the goods and services of greatest value to everyone else.
That story of course is nonsense, but the question is: why? It seems correct. In fact it is broadly correct in the sense that the things described in the story do in fact happen in real life. So why isn't it a happy ending like in the fairy tale?
There are a few things going on here, but the one of importance here is where are those yacht-builder employees buying their goods and services from?
One missing aspect of the story is that they're paid a tiny amount compared to the top management of the yacht company and a few other specialists like the naval engineer, the captain, and the lead software developer. So they don't actually have a lot to spend. And what they do spend money on is largely provided by conglomerates controlled largely by Millionaire Mike and Trillionaire Todd, who of course are very close friends of Bill. Mike and Todd know ensure that their prices are as high as possible to capture as much of their customers' income as revenue. Mike and Todd then go buy golfing trips, yachts, mansions, etc. And the cycle continues.
The effect is that all the individual employees do in fact get some of Bill's billions of dollars in the form of income, but they only get enough to cover their essentials, and any profit from buying those essentials goes right back into the hands of another person just like Billionaire Bill. The income does in fact flow throughout the economy as in the bedtime story, but you can't understand the welfare of individuals within the economy by just looking at total flows.
You don't need to be a Marxist to see that this is how the economy works and has worked since the dawn of capitalism. It's a natural low-energy state that economies naturally tend towards, because humans are humans and there is always a minority that is willing and able to take avantage of others.
The only difference here is that the loop is tighter, where Bill Todd and Mike are all just buying each other's services directly.
Think about the classic economics fairy tale of why income redistribution is bad ("inefficient") and trickle-down economics is good.
Billionaire Bill buys his 10th yacht. Workers need to manufacture the yacht and all the different parts of it. He needs to hire staff to keep it clean, to maintain it, to operate it, and to stock the fridge; he needs to pay for satellite internet so he can do business on the yacht; and he needs to buy TVs for the kids. All of that stuff is produced by other businesses with their own employess and sometimes independent contractors. So all of this economic economic activity results in a flow of income to a large number of individuals. Those individuals then themselves all need to buy groceries, clothes, housing, transportation, etc. so all that income then continues to flow outward throughout the economy. The price system orchestrates everything so that the proceeds from Billionaire Bill's yacht are used to provide the goods and services of greatest value to everyone else.
That story of course is nonsense, but the question is: why? It seems correct. In fact it is broadly correct in the sense that the things described in the story do in fact happen in real life. So why isn't it a happy ending like in the fairy tale?
There are a few things going on here, but the one of importance here is where are those yacht-builder employees buying their goods and services from?
One missing aspect of the story is that they're paid a tiny amount compared to the top management of the yacht company and a few other specialists like the naval engineer, the captain, and the lead software developer. So they don't actually have a lot to spend. And what they do spend money on is largely provided by conglomerates controlled largely by Millionaire Mike and Trillionaire Todd, who of course are very close friends of Bill. Mike and Todd know ensure that their prices are as high as possible to capture as much of their customers' income as revenue. Mike and Todd then go buy golfing trips, yachts, mansions, etc. And the cycle continues.
The effect is that all the individual employees do in fact get some of Bill's billions of dollars in the form of income, but they only get enough to cover their essentials, and any profit from buying those essentials goes right back into the hands of another person just like Billionaire Bill. The income does in fact flow throughout the economy as in the bedtime story, but you can't understand the welfare of individuals within the economy by just looking at total flows.
You don't need to be a Marxist to see that this is how the economy works and has worked since the dawn of capitalism. It's a natural low-energy state that economies naturally tend towards, because humans are humans and there is always a minority that is willing and able to take avantage of others.
The only difference here is that the loop is tighter, where Bill Todd and Mike are all just buying each other's services directly.
> The value they are providing can in no way be proportional to the rate of growth of their stock.
Stock price is related to the predicted total value of the company from now until eternity, not the current value it's providing.
Stock price is related to the predicted total value of the company from now until eternity, not the current value it's providing.
The real question is how much further the top tech firms can cut costs, and how much of their expenses they can shift to NVDA. They aren’t growing particularly fast at this point.
I divested from s&p and completely switched to funds that avoid these companies... Basically non computer tech.
When reality comes to the table it isn't going to be pleasant.
When reality comes to the table it isn't going to be pleasant.
You might want to consider an equal weight etf
$RSP is $SPY, but equal allocation across all 500 companies. So the top tech stocks are ~1.5% of your holding instead of ~20%.
$RSP is $SPY, but equal allocation across all 500 companies. So the top tech stocks are ~1.5% of your holding instead of ~20%.
I looked into somehow hedging against the Mag 7 in my portfolio (which is otherwise almost entirely in an S&P 500 index fund), but it seemed surprisingly difficult for something that is probably quite widely desired.
Though maybe I'm just unsophisticated. And it feels a little hopeless because there's no telling how long the smoke and mirrors will continue working, and whenever it stops, undoubtedly the rest of the economy is going to suffer, too. Bleh.
Though maybe I'm just unsophisticated. And it feels a little hopeless because there's no telling how long the smoke and mirrors will continue working, and whenever it stops, undoubtedly the rest of the economy is going to suffer, too. Bleh.
Investments can never be identical for everyone, but in my case I switched my assets from an MSCI World to an MSCI World ex USA.
For the U.S. market portion I adopted a more complex strategy based on factor / smart-beta investing (making sure that none of the top holdings include AI-related companies).
For the U.S. market portion I adopted a more complex strategy based on factor / smart-beta investing (making sure that none of the top holdings include AI-related companies).
It’s not difficult, it’s just expensive.
Like which one?
I'm not completely divested but I'm buying some VFVA as my non-tech fund.
Top holdings are CVS, Verizon and FedEx all at 0.8%. Basically normal companies.
It's amazing how traditional companies have done in comparison to the top of the S&P500 (or really the top S&P10). So I feel the need to buy the other stuff in case the top S&P10 is a bubble.
Top holdings are CVS, Verizon and FedEx all at 0.8%. Basically normal companies.
It's amazing how traditional companies have done in comparison to the top of the S&P500 (or really the top S&P10). So I feel the need to buy the other stuff in case the top S&P10 is a bubble.
Wise choice.
Apple is still behind the AI game/story, its stock barely grew from 3T market cap height in 2022. It is treated as a safe investment- i.e. when the bubble pops.
The rest of the pack is feeding on the AI hype train, each supplying their services to pump up the story (analogy): Nvidia on chips (shovels), Microsoft and Amazon on cloud (gold storage), Meta and Google on ads (marketing).
The rest of the pack is feeding on the AI hype train, each supplying their services to pump up the story (analogy): Nvidia on chips (shovels), Microsoft and Amazon on cloud (gold storage), Meta and Google on ads (marketing).
It's unclear from the "post" (what is it with these blogs where entries are like 3 sentences??): did they take current top 10 stocks and project their retuens backwards, or did they look at the retuen of always holding the top 10 stocks in the index?
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.
If the former then duh! Top 10 stocks are top 10 because they were going up! You will see this for any index.
The latter would make sense but given the laconicity of the post, it's pointless to speculate.
Quants are lacking these days - a few notes. pls fix
> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
> forward net income estimates
Its a backward looking chart, use actual profits or eps results (although that can be manipulated through accounting). If the point is that income expectations are low - then are those expectations bourne out in the earnings?
> 3 years
Why only show the chart of the last 3 years? Has it always been like this - text says this wasnt the pattern in the 1960's (and 70's btw) - but there is a 50 year window between then and now that isnt discussed.
this is basically just a normalised pe ratio for top 10 and rest of the index - use that instead.
I sold all my S&P 500 holdings and the majority of my US stocks a while back to diversify internationally. Being so heavily concentrated in US markets felt too risky at the time, so I pivoted to investing in funds, companies, and markets around the world instead
Seeing lots of commenters say they dumped their entire position in SP500. That is probably not the best move
I also felt overexposed to tech and about 80% of my stock portfolio was US total market or SP (basically the same)
I have been dollar-cost averaging slightly out of those positions and into other small-/mid-cap funds. I have decreased my stock allocation as well and moving toward bonds and CDs, which are returning around 4.5-5% guaranteed.
Interested to hear what others who speculate that SP overdue for correction might be doing
I also felt overexposed to tech and about 80% of my stock portfolio was US total market or SP (basically the same)
I have been dollar-cost averaging slightly out of those positions and into other small-/mid-cap funds. I have decreased my stock allocation as well and moving toward bonds and CDs, which are returning around 4.5-5% guaranteed.
Interested to hear what others who speculate that SP overdue for correction might be doing
> Seeing lots of commenters say they dumped their entire position in SP500. That is probably not the best move
Fair point about dumping entire positions not being ideal. I got lucky with the timing since the market dropped shortly after I sold. Definitely got lucky on timing that
Long term, I'll likely reinvest in the S&P 500, but as a much smaller slice of my portfolio alongside other indices, bonds, individual stocks, etc. The plan is to avoid that level of concentration going forward regardless of how well it might perform
Fair point about dumping entire positions not being ideal. I got lucky with the timing since the market dropped shortly after I sold. Definitely got lucky on timing that
Long term, I'll likely reinvest in the S&P 500, but as a much smaller slice of my portfolio alongside other indices, bonds, individual stocks, etc. The plan is to avoid that level of concentration going forward regardless of how well it might perform
I've had small, mid and S&P funds for a while. Small-cap hasn't done great this year. One idea I've heard in the past is that its more directly affected by consumer weakness as it has a lot of consumer staples companies (and also probably more exposed to risk from tariffs).
I've been slowly DCAing out into bonds, but I'm still over 80% stock total.
I've been slowly DCAing out into bonds, but I'm still over 80% stock total.
OK. But shouldn't your first step have been going from S&P 500 to total index?
His goals were to diversify away from the USA.
Total Index is practically identical to S&P500 because Total Index is also market cap weighted.
Total Index is practically identical to S&P500 because Total Index is also market cap weighted.
The market caps of those US companies is huge because they do business across the world.
Even total market indices are not truly diversified though. For example the HSBC FTSE All World Index (which I do hold some of) still has a 58% US concentration and 27% in technology sectors (14% software services + 13% technology). For something marketed as global, there's still a massive concentration in the US and technology sectors
But then they wouldn’t have felt smarter than everyone else.
Hank Green - I'm Changing How I Manage My Money Because of AI [video]
https://youtu.be/VZMFp-mEWoM?si=ebdSU-W59KX5G0Qu
https://youtu.be/VZMFp-mEWoM?si=ebdSU-W59KX5G0Qu
I even said the “if the singularity happens does our company even matter” in discussion about our AI heavy startup.
If you think the world is ending maybe you should not plan your cap table but actually invest in shotgun shells
Am I reading the chart wrong, or does it show that the S&P500 ex-top 10 stocks increased by 20% over 3 years? That would be a historically average and very reasonable return.
As someone who knows very little about finance, is there any ETF available which acts as a middle-ground between market-cap weighted and equally-weighted funds? The very high concentration of tech and AI in the S&P 500 at the moment makes me uncomfortable, but equal-weight seems too drastic to me. A fund where the weighting is done by the square root of the market cap feels like it would make sense but I can't find anyone doing this.
> A fund where the weighting is done by the square root of the market cap feels like it would make sense but I can't find anyone doing this
Trading costs. A cap-weighted portfolio manages itself. Square root cap weighting is going to trade a lot, and that's expensive.
Trading costs. A cap-weighted portfolio manages itself. Square root cap weighting is going to trade a lot, and that's expensive.
Ahh that makes a lot of sense, thanks. I hadn't considered how elegant it is that the fund stays balanced without trading.
I think even a square root cap approach alone is not very balanced.
There are ETFs that consider fundamentals, such as book value, cash flow, and sales. In these fundamental-weighted ETFs, AI companies that burn large amounts of cash are rated much lower compared to their weighting in market cap-based ETFs.
There are ETFs that consider fundamentals, such as book value, cash flow, and sales. In these fundamental-weighted ETFs, AI companies that burn large amounts of cash are rated much lower compared to their weighting in market cap-based ETFs.
Seems like a portfolio balanced by P/Es would do most of what you want.
If Tesla has a 200 P/E and MSFT has a 40 P/E, and the s&p has an average of 20, you'd have 1/10th the Tesla and 1/2 the MSFT shares as a traditional ETF.
If Tesla has a 200 P/E and MSFT has a 40 P/E, and the s&p has an average of 20, you'd have 1/10th the Tesla and 1/2 the MSFT shares as a traditional ETF.
Maybe do a portfolio of S&P 500 ex mag 7, market cap and equal weight and see if you can get the aggregate weights to match (within reason) sqrt weights.
The ten most valuable S&P 500 companies are, in order of market cap:
Nvidia, Microsoft, Apple, Alphabet/Google, Amazon, Meta/Facebook, Broadcom, Tesla, Berkshire Hathaway, and Walmart.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
Nvidia, Microsoft, Apple, Alphabet/Google, Amazon, Meta/Facebook, Broadcom, Tesla, Berkshire Hathaway, and Walmart.
A commonality to most of them (and to a lesser extent all of them) is they write software.
If a company not on the list like Ford has an F-150 truck come off the assembly line, some of that $40,000 cost is in the capital expenditure for the plant, any automation it has, the software in the car and so on. But Ford has to pay for the aluminum, steel and glass for each truck. It has to pay for thousands of workers on the assembly line to attach and assemble parts for each truck.
Meanwhile, at Apple a team writes iOS 18, mostly based on iOS 17, and it ships with the devices. Once it is written that's it for what goes off on iPhone 16. There may be some additional tweaks up until iOS 18.6. The relatively small team working on iOS has it going out with tens of millions of units. Their work is not as connected to the process of production as the assembly line people attaching and assembling the F-150 truck. If some inessential feature is not done as a phone is being made, it will be punted to next release. This can't be done with an F-150 truck.
Software properly done is just much more profitable than non-software work. We can see this here. Yes, some of the latest boost is due to AI hype (which may or may not come to fruition in the near future), but these companies got to this position before all of that.
I was watching a speech by Gabe Newell talking about the (smaller) software industry of the 1990s, and the idea back then to outsource and try to save on salary costs. He said he and his partners went the other way and decided to look for the most expensive and best programmers they could find, and Valve has had great success with that. Over the past 2 1/2 years we've seen a lot of outsourcing to cheaper foreign labor, FAANG layoffs (including Microsoft's recent Xbox layoffs), and more recently attempts to lower costs by having software produced by less experienced vibe coders using "AI". I have seen myself at Fortune 100 companies, especially non-tech ones, that the lessons of the late 1960s NATO software engineering conferences, or the lessons learned by Fred Brooks while managing the OS/360 project in the 1960s haven't been learned. Software can be a very, very profitable enterprise, and it is sometimes done right, but companies are still often doing things in the same way they were attempting such projects in the early 1960s. Even attempts to fix things like agile and scrum get twisted around as window dressing to doing things in the old-fashioned corporate way.
For those worrying about concentration ... the market can get even more concentrated than it is now. In the 1880s, 80% of the market was related to railroads. That concentration always mean reverts, but it could take some time.
I feel like the situation in the 1880s was in a very, very different environment to today, though. How many public companies even were there 140 years ago...? (I actually tried to find this out just now with some quick searching, and wasn't able to find anything that looked relevant, so solid data would be helpful...)
Particularly in the latter part of the 20th century, the number of companies that choose to go public seems to have increased quite a bit—and, at the same time, there's been a huge wave of consolidation, meaning that even if there are fewer public companies than there would be without that, a higher share of the total economy is likely to be made up of public companies.
Particularly in the latter part of the 20th century, the number of companies that choose to go public seems to have increased quite a bit—and, at the same time, there's been a huge wave of consolidation, meaning that even if there are fewer public companies than there would be without that, a higher share of the total economy is likely to be made up of public companies.
I've been rolling a 5 quantity long @ES since 2022. It hit stop once, made 30%, lost 10%, I waited for the next contract, entered again it just keeps printing. I intend to keep going for decades. Should have started earlier.
eli5, pls?
They are using leverage via futures contracts to grow their portfolio.
The average person would be unlikely to be able to stomach holding a contract as each one moves the same as holding ~$250,000 of the S&P500. You get this by putting ~$25k down. A 10% move down and you are wiped, a 10% move up and you double your money.
However they do offer micro contracts which are $25,000 of S&P500 for ~$2,500.
The average person would be unlikely to be able to stomach holding a contract as each one moves the same as holding ~$250,000 of the S&P500. You get this by putting ~$25k down. A 10% move down and you are wiped, a 10% move up and you double your money.
However they do offer micro contracts which are $25,000 of S&P500 for ~$2,500.
To add a little more detail, ES is the e-mini S&P 500 futures contract traded on the CME. The way it works is that you put up some amount of money called the "margin", and you get to buy or sell a larger "notional" valued contract. The difference between the margin that you put up and the greater notional value is the implicit leverage that parent comment refers to.
You can find the contract specs on the CME's website here [0]. The implicit leverage is actually a bit greater than the parent comment says. The contract notional value is defined as $50 x Index Value, which is currently around 6500. So the contract represents close to $325,000 and the exchange's margin requirement is around $21,000. Interactive Brokers seems to require similar margin [1]. The margin requirement is around 6.5% of the notional value, i.e. 15x leverage. So a 6.5% decrease in the S&P 500 would wipe out the account.
Not sure why the parent comment is downvoted, I suppose it has a moralizing tone?
[0] - https://www.cmegroup.com/markets/equities/sp/e-mini-sandp500...
[1] - https://www.interactivebrokers.com/en/trading/margin-futures...
You can find the contract specs on the CME's website here [0]. The implicit leverage is actually a bit greater than the parent comment says. The contract notional value is defined as $50 x Index Value, which is currently around 6500. So the contract represents close to $325,000 and the exchange's margin requirement is around $21,000. Interactive Brokers seems to require similar margin [1]. The margin requirement is around 6.5% of the notional value, i.e. 15x leverage. So a 6.5% decrease in the S&P 500 would wipe out the account.
Not sure why the parent comment is downvoted, I suppose it has a moralizing tone?
[0] - https://www.cmegroup.com/markets/equities/sp/e-mini-sandp500...
[1] - https://www.interactivebrokers.com/en/trading/margin-futures...
Neither has my salary.
Yeah tbh i am somewhat worried about the concentratraion in the tech and ai stocks. 33% of vc is in ai startups as well.
A lot of the concentration comes from companies just gobbling others, and therefore being more large conglomerates than anything else. Alphabet could easily be 5 separate stock tickers if they felt like it, and most would probably be big enough to be in the index. You could say the same thing of Meta and Microsoft. Splitting AWS from Amazon would also give us two very real, top of the line companies.
So the concentration might be a lot less than it seems, just because a lot of the AI play might be as low risk as, say, when Meta sank so much money into VR, or Amazon decided that smart speakers were the future. A lot of profits are spent if it all fails, but the engine of the company is still sitting there, being the same money fountain it's been for the last decade. It's just that they are, in practice, investing on what would be a new company with the proceeds, instead of doing stock buybacks, providing massive dividends, or reinvest in the existing verticals.
So the concentration might be a lot less than it seems, just because a lot of the AI play might be as low risk as, say, when Meta sank so much money into VR, or Amazon decided that smart speakers were the future. A lot of profits are spent if it all fails, but the engine of the company is still sitting there, being the same money fountain it's been for the last decade. It's just that they are, in practice, investing on what would be a new company with the proceeds, instead of doing stock buybacks, providing massive dividends, or reinvest in the existing verticals.
Total return to the investor doesn’t require constant income growth. I don’t know if this is a particularly surprising chart.
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This is the expected outcome in capitalism. The general flow is money -> commodities -> greater money, and while it's not zero sum eventually that flow necessarily concentrates the money into entities that have the most money.
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
Once you become large enough, your "commodities" become other companies that are growing, enabling you to simply purchase growth and income directly with your capital.
In game design we call this a snowball effect or a "winners win more" system. It necessarily disadvantages everyone who is not at the top.
Unfortunately, there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
I am more and more convinced that we should set hard limits on size of companies and also individual wealth. I am ok with rewarding hard work but we have reached a point where wealthy individuals and large companies have accumulated too much power.
During the last election I was shocked how most people seem to think it’s ok for somebody like Musk to try to influence a senate election and to intimidate other candidates if they don’t fall in line. This should not be acceptable in a democracy.
Soon we will have the first trillionaire. That person will probably be more powerful than a lot of countries or US states.
During the last election I was shocked how most people seem to think it’s ok for somebody like Musk to try to influence a senate election and to intimidate other candidates if they don’t fall in line. This should not be acceptable in a democracy.
Soon we will have the first trillionaire. That person will probably be more powerful than a lot of countries or US states.
> I am ok with rewarding hard work
This is a terrible idea. You should pay for value, not reward hard work. Rewards are for kids.
This is a terrible idea. You should pay for value, not reward hard work. Rewards are for kids.
>there seems to be little appetite for limiting the capacity of capital to accumulate in only a few winners.
Despite many peoples' attempts to say otherwise, this is pretty much the core point of capitalism.
It emerged out of mercantilism which was applying the same "winner takes all" aim, except to states rather than individuals.
Despite many peoples' attempts to say otherwise, this is pretty much the core point of capitalism.
It emerged out of mercantilism which was applying the same "winner takes all" aim, except to states rather than individuals.
So this bubble is a long way from popping because we still have time to prop it up by lowering interest rates and rotating to small[er] caps?
3!?
Can’t wait for the stock market to crash beyond recovery and people shifting to buying up land and real estate, making living expenses skyrocket (again).
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
It’s gonna be a mood.
Mass homelessness, the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
It’s gonna be a mood.
> Mass homelessness
Already here
> the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
This is literally happening right now in Washington DC (it's the National Guard but still).
Already here
> the 10th republican president in a row mobilizing the army, purging the homeless from the streets, people cheering.
This is literally happening right now in Washington DC (it's the National Guard but still).
Imagine when people with FAANG salaries can’t afford rent.
People already speculate on land. There's no land value tax, so you buy cheap land, keep it empty (put a car dealership or something that's basically a parking lot on it, never develop it), then sell it to a developer years down the road
Yeah they do now make it the primary investment strategy (which will self accelerate if it grows faster than S&P500). Now imagine the results.
Car washes are the current meta
Then you are going to really have the "AGI" experience.
I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.