If there was one area of the market you had to invest in during 2023, then it was the Magnificent 7 (M7). Stocks in the Magnificent 7 include Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla. The Magnificent 7 index has accounted for 87% of the appreciation of the S&P 500 index in 2023. Is this unusual? Very, especially if 2023 was the beginning of a new bull market after the more than 20% decline in the S&P 500 in 2022. The 2023 returns for these 7 stocks were as follows:
Apple 45%
Alphabet 58%
Microsoft 60%
Amazon 81%
Tesla 102%
Meta 178%
Nvidia 208%
Why were these stocks so profitable for investors? There are two considerations: firstly, they provided us with what is needed to elevate the world to a new way of life; and secondly, they introduced a technology called Artificial Intelligence, which will revolutionise the way many companies do things. Will these returns be repeated in 2024? Probably not, but nobody expected them to do so well in 2023 either.
Investors tend to credit themselves with too much expertise and believe they know better. Sometimes we guess right and our investment case pans out, but for wealth creation you have to be consistent in your winners. It is very much like a game of cricket, where you have the choice of swinging for a 6 every time, or going for the option of accumulating one run at a time. The M7 gave us a 6 in 2023, without us even trying. Perhaps they can take a rest now, for a while.
If your heart rate gets elevated every time you look at your investment report, you are moving towards the spectrum of speculation. But if the report makes you think “Okay, ticking along nicely”, then you are on the right path.
We are looking forward to 2024. We know that things are going to change. But if we keep in mind that we are unique in a galaxy of 200 billion stars, in a universe of 2 trillion galaxies, then we can handle it.
