Five Biggest Stocks Are 23% of S&P 500 Market Cap

In 1964 the five biggest made up 27.60%:

* https://theirrelevantinvestor.com/2020/04/21/the-only-thing-...

In 1964, AT&T alone made up 8.90% and in 1969 IBM alone made up 9.00%.

The author of this story needs to look into history more and go back more than just thirty years.

Companies and industries rise and fall and have for centuries in the stock market:

* https://en.wikipedia.org/wiki/Technological_Revolutions_and_...

> This paper argues that the two boom and bust episodes of the turn of the Century –the Internet mania and crash of 1990s and the easy liquidity boom and bust of 2000s– are two distinct components of a single structural phenomenon. They are essentially the equivalent of 1929 developed in two stages, one centred on technological innovation, the other on financial innovation. Hence, the frequent references to that crash, to the 1930s and to Bretton Woods, are not simple journalistic metaphors for interpreting the “credit crunch” and its solution, but rather the intuitive recognition of a fundamental similarity between those events and the current ones. The paper holds that such major boom and bust episodes are endogenous to the way in which the market economy evolves and assimilates successive technological revolutions. It will discuss why it occurred in two bubbles on this occasion; it examines the differences and continuities between the two episodes and presents an interpretation of their nature and consequences.

* PDF: http://www.carlotaperez.org/downloads/pubs/C.PEREZ_CJE_Doubl...

I'm usually the last to defend the construction of the US economy, but I think this is a bit of an overreaction. The stock market is not the economy. Big Tech bubbles are bad, but this isn't 2008 where people lost their houses because of financial engineering.

I think the bigger story (and issue) is just how few people are involved in and benefiting from Tech. These companies have massive market caps because they employ a tiny amount of people relative to how much money they make. For every one tech worker making high six figures there are a 50 people doing low-level healthcare service work. The vast majority of Americans own trivial amounts of stock, so they don't even benefit indirectly from the Tech bubble. All of this is just exacerbating the radical divergence of the haves and have-nots in our economy.

You seem to be under the misconception that the stock market somehow reflects the actual economy, in fact you seem to think that the stock market is the economy.

Those "top 5" companies taken together are less than 5% of the actual US economy, regardless of whichever way you want to calculate that (revenue/profit+wages vs GDP, ...)

The ones hurt by an investment failing are just the investors themselves, which is the whole point of investment. You take the risk and reap the rewards.

The only exception is when a "too big to fail" whatever (this narrative is complete bs btw) made bad investments again, so the government, and by proxy the taxpayer, steps in to finance the gambling addiction of people who are politician's retirement plans. Now you have made a considerable impact on the actual economy.

That's real money being invested in these companies. Index funds buy stock and never sell it. It's real money, buying real shares, that takes the stock out of circulation, that don't get day traded.

Anyway, not to be caught in semantics, but I believe stocks can be priced high and very high, but that doesn't mean it has to fall. The index fund system props up the prices forever.

> Technological revolutions are often accompanied by substantial stock price reversals, but previous literature has produced competing explanations for why this is the case. This paper brings new evidence to this debate using data from the innovation-driven British Bicycle Mania of 1895-1900, in which cycle share prices rose by over 200 per cent before collapsing by more than 75 per cent. These price patterns are not fully explained by fundamentals or by changes in the nature of risk associated with cycle shares. Instead, the evidence from the Bicycle Mania supports the hypothesis of Perez (2009), who argues that new technology, high short-term profits, and loose monetary conditions increase the level of speculative investment, ‘decoupling’ share prices from fundamentals.

* https://www.econstor.eu/bitstream/10419/148345/1/87292534X.p...

Recent video by Ben Felix of PWL Capital on the topic, "Investing in Technological Revolutions":

> Exciting new technologies, and the companies that create them, seem like obvious investment opportunities. Why wouldn’t you want to invest in the companies leading a new world-changing technological paradigm?

* https://www.youtube.com/watch?v=UZnVt_CvL3k

That’s the nice thing with the market cap weighted SP500 funds, no tax consequences from rebalancing.

But you could plug “RSP” into a tax-advantaged account.

Edit: You can owe taxes even if you don’t personally buy/sell.

As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.

https://investor.vanguard.com/investing/taxes/mutual-funds-e...

Note that an equal-weighted index will tend be more volatile, have higher turnover (i.e. more trading costs and short-term tax effects) and be sensitive to value over momentum in comparison with a market-cap weighted index like the S&P 500. The former have outperformed the latter over the last decade (EDIT: no, it hasn’t. I was looking at a biased source.)