And the first one now will later be last, for the times they are a-changin’.
– Bob Dylan
Bob Dylan is remembered as a poet, but he might have made a decent market analyst. His lyrics capture the cyclical nature of human behavior — in politics, culture, and markets.
Before the mid-1990s, the S&P 500 tilted toward industrials, energy, and consumer brands. Then came the Dotcom wave: technology surged, and the top ten holdings grew to about 20% of the index. In the late 2010s, the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) once again drove concentration near that same level. Today, the top ten holdings — the “Magnificent Seven” plus three — represent an astonishing 40% of the S&P 500’s value. Over-concentrations of this magnitude are unsustainable.
While the S&P often dominates attention, it reflects only the largest U.S. companies. Beyond it, the story has been quite different. Over the past five years, the international EAFE Index (International) has lagged the S&P by roughly 6% compounded annually, and the Russell 2000 (Small Companies) has trailed by about 8%.
Periods like this have happened before — and eventually reversed. During the 2000–2003 Dotcom bust, for instance, the S&P fell -38%, while the Small-Cap Value Index rose +43%.
No one can predict which segment will lead in the year ahead. What remains constant is our discipline: aim for broad diversification and focus on avoiding permanent capital loss. We do that by:
- Identifying and appraising great businesses
- Buying when shares trade at a discount to our appraisal
- Paring back when they exceed our appraisal
- Targeting an even split between large and small companies
- Allocating roughly 20% to firms domiciled outside the U.S.
A final note: British politician Joseph Chamberlain once remarked, “May you live in interesting times.” We certainly do. It’s understandable that volatility and headlines may stir anxiety. But history shows that reducing stock exposure for short-term comfort often leads to long-term regret. So, while “the wheel’s still in spin” and the times keep changing, our compass stays steady. The only constant is change — and discipline remains our best response.
BWP Outlook – Changing Times
And the first one now will later be last, for the times they are a-changin’.
– Bob Dylan
Bob Dylan is remembered as a poet, but he might have made a decent market analyst. His lyrics capture the cyclical nature of human behavior — in politics, culture, and markets.
Before the mid-1990s, the S&P 500 tilted toward industrials, energy, and consumer brands. Then came the Dotcom wave: technology surged, and the top ten holdings grew to about 20% of the index. In the late 2010s, the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) once again drove concentration near that same level. Today, the top ten holdings — the “Magnificent Seven” plus three — represent an astonishing 40% of the S&P 500’s value. Over-concentrations of this magnitude are unsustainable.
While the S&P often dominates attention, it reflects only the largest U.S. companies. Beyond it, the story has been quite different. Over the past five years, the international EAFE Index (International) has lagged the S&P by roughly 6% compounded annually, and the Russell 2000 (Small Companies) has trailed by about 8%.
Periods like this have happened before — and eventually reversed. During the 2000–2003 Dotcom bust, for instance, the S&P fell -38%, while the Small-Cap Value Index rose +43%.
No one can predict which segment will lead in the year ahead. What remains constant is our discipline: aim for broad diversification and focus on avoiding permanent capital loss. We do that by:
A final note: British politician Joseph Chamberlain once remarked, “May you live in interesting times.” We certainly do. It’s understandable that volatility and headlines may stir anxiety. But history shows that reducing stock exposure for short-term comfort often leads to long-term regret. So, while “the wheel’s still in spin” and the times keep changing, our compass stays steady. The only constant is change — and discipline remains our best response.