Can You Ever Have Too Much of a Good Thing?
Since time immemorial, humans have always wanted things better and faster, to speed up a process, to get more returns as soon as possible. The Magnificent Seven, nick-named as such because of the outsized return that these seven stocks delivered in 2023, drove the majority of returns in the U.S. markets last year.
These seven stocks are now worth more than than all the stocks combined in the UK, China, France, and Japan (as represented by the MSCI All Country World Index).
When you are driving at high speeds, small mistakes can have large consequences. One definition of risk is the realisation of the unexpected. When stocks are priced for perfection, as seen from high valuations — Magnificent Seven’s P/E is more than double the market, any negative surprise can bring down the stock price dramatically.
In What Happens after Stocks Run up in Price, we showed that history has not been kind to expensive stocks, especially if your portfolio is concentrated in them. American investor and author Charles D. Ellis gives a good summary of our message: If you put risk first, the returns take care of itself.
“Large losses are forever - in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.”
Most of us would trust an accomplished physician to manage our health. After all, physicians have specialised training, real-world experience and access to tools outside the reach of the general public. Most importantly, they took an oath to prioritize the patient’s health over their own interests.
In the way same, GYC adapts insights from financial science to develop a financial plan that is built upon a rigorously tested investment philosophy. We work hand in hand with our clients to accomplish each of their unique goals.
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