The Price of Magnificence: Is History Repeating Itself?

Ben Beneche and Ramesh Narayanaswamy Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Magnificent Seven is an old movie with a new cast.

Every so often, a story about a group of companies whose futures seem certain captures the imagination of investors. Previous ones have included the Nifty Fifty in 1970, Peak Oil in 1980, the Japanese miracle in 1990, the boom in 2000, and rise of China in 2010.

Every time, persuasive narratives drove high expectations and a cheery consensus, but expectations were not matched by reality. Unforeseen disruption, relentless competition, and the pressure of lofty valuations typically preceded disappointing returns for shareholders.

In the spotlight today are the “Magnificent Seven,” which include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These seven stocks account for over 30% of the S&P 500 by market capitalization.

Avoiding the “Magnificent Seven” because of concentration alone, however, lacks rigour. While it’s worth studying patterns of human behavior, a reductionist approach overlooks the fundamental strengths of these businesses.

As unconstrained global value investors, we believe durability is the key to equity investing. Our firm invests in companies resilient to competition and disruption over decades, protecting superior returns on capital and cash flows. We also believe the price you pay is crucial to prospective returns. In short, we buy durable businesses when they are cheap.