This Probably Isn't True
But it is something to think about.
Back in the day, I had the opportunity to meet and talk to some very smart people. I fooled them into thinking I was smart as well, so I had some really interesting conversations.
Generally, when you meet someone who is obviously smarter than you, the best thing to do is sit back and let them talk. Smart people, as well as not so smart people, love to hear themselves talk. You never know what useful knowledge you might get out of it.
Well, I was in San Fransisco many years ago and I got to talking with this hedge fun guy. Couldn’t tell you his name or his hedge fund but I do remember that his hedge fund was one of the few hedge funds that did not get involved with Meta or Apple or any other high flyer. Steady as she goes, was his motto so you can kind of understand where his thought process was.
Conservative investor in the Wild West of investing. No wonder I can’t remember the who or what. Anyway, he said something that I often think about.
His idea was that when a company becomes too big, too powerful, too overweighted in any one of the major indices, the Federal Government will quietly (and not so quietly) try to break them up.
It happen with ATT years ago. Broke it up and made all the Baby Bells. Microsoft became too powerful and all of a sudden it is being hunted by the Federal Government. Google, too dominant, they need to break up.
Now they are all companies that dominated their sectors. Microsoft was the exception because of it’s valuation as well. They had become close to 10% of the total value of the S&P 500. One stock should not carry that much influence was the thinking.
No matter who is the White House, they all think the same way, monopolies are no good, too big is no good. I see the reasoning because of the histories of monopolies in this country. Not very good.
Yet, we do allow companies to dominate particular markets and the consumer always looses. Cable (Do they still even exist? Why?) for example. Cable companies are at the very bottom of JD Powers rankings for customer service. Why you ask? Because they have zero competition and could care less if your router isn’t working. Nisha in Delhi has zero connection to you, your community but she saves Verizon 23K a year. They don’t care. The government has allowed them to operate as legal monopolies for years. They say that, any cable company can operate in any area but when local governments restrict them how is that fair. I digress.
The point of my ramblings is that NVidia is going to report today and if they have another blowout earnings report, their market cap could exceed 8% of the overall value in the S&P 500. Right now it’s right at that 8% level and it doesn’t seem to be a big deal.
Yet, it is a very big deal. A company with that sort of weighting in an index can alter the portfolios of millions of people with a bad earnings report.
If NVidia misses or does not meet expectations, the momentum will be decidedly negative and that could carry the whole entire market in one direction.
One stock should not determine where the market goes.
That is why the Federal Government over decades has fought to break up the power of these companies. I don’t necessarily agree with that but I do get the principle.
In NVidia’s case, there doesn’t seem to be any Federal Agency looking into their dominance in their market. Nor are they looking at the company’s stock and determining it’s too influential.
The magnificent seven as they are known (great song by The Clash too) have pretty much dominated the market for the last 4 years. Now, it’s NVidias turn.
So, today we wait for what amazing numbers come out of the company, cross our fingers and hope they don’t disappoint.
And I still don’t understand AI.