How Conservative Investing Laid An Egg

Trillions invested by traditional wealth managers like JP Morgan and Goldman Sachs, badly failed to protect serious defensive investors, year-to-date. Such assets historically get placed in a 60/40 pie construct in stocks and bonds. Some 60% is largely comprised of S&P 500 stocks with the remaining 40% of assets placed in investment grade corporate bonds. A smattering of foreign securities and speculative stocks that comprise the NASDAQ 100 Index seem never to get overweighted.

Cosmetically, the message from most managers is we are all-encompassing in asset based knowledge. Trust us to do the right thing. We will never bury you. This, of course, is a myth. Underperformance can stretch over a full investment cycle for many managers.

Wealth management is a major profit center for big banks and brokerage houses. So, chronic underperformance can impair their over-all profitability year over year.

Even so-called defensive investments like shorter term Treasuries have sluffed-off. The high-yield bond market is a disaster that happened. Meanwhile, internet houses like Meta and Alphabet have been chopped up along with Tesla, Amazon, and Netflix, even Microsoft got trashed. Pie charts advocates have plenty on their plate to contemplate.

Current markets have just shown me one more way to be humbled. I’ve placed 40% of my assets in two-year Treasuries only to see them fade away. Yes I know, hold them to maturity and come out whole. But, what about opportunity cost if the market turns north and you're left at the post holding Treasuries? Pie chart investors have a lot to think about, too, in terms of immersion in fallow paper assets.

I delved back into my trusty chart book and found, unexpectedly, enormous variance in fortune for the 25 largest capitalization stocks, decade-to-decade. Eight years ago, for example, technology as yet, hadn’t crowded out most everything else. Yes, Apple and Microsoft showed big asset numbers but Exxon Mobil was numero tres at $280 billion.

Over a 13-year interval, Exxon traced a compound growth rate under 3%. GDP growth is normalized at 3% too soo, Exxon is nothing more nor less than a GDP stock, GDP stocks rarely sell above the market's multiplier for very long. Often, GDP paper sells at a market discount.

Exxon became a demoralized stock when we saw oil quotes slough off, but over 24 months XOM has performed mightily, moving from under $40 a share to its present high of $114 per share. For a cyclical, if your entry point is on the money, you’ll do better than in a pricey growth stock.

When I turned to an updated list on market capitalization for the top 2 dozen stocks, I was surprised by what I saw in terms of the internal dynamics of this short list. Has anybody but me noticed that Exxon Mobil, past couple of months, has rocketed ahead over 30% from an already heady voyage from under $40 just two years ago? We are talking about a near triple for a stodgy piece of paper that could encounter a deep recession without a blink.

Recent Order Of Dominance:

Top 20 market Capitalizations

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Apple

Microsoft

Alphabet

Amazon

Berkshire Hathaway

Tesla

UnitedHealth

Exxon Mobil

Johnson & Johnson

Visa

NVIDIA

JP Morgan Chase

Walmart

Chevron

Eli Lilly

Procter & Gamble

MasterCard

Home Depot

Meta Platforms

Pfizer

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From Apple with a market capitalization of $2.5 trillion down to Pfizer at $265 billion, the list is heavy in growth stocks. Exceptions are Exxon Mobil, JP Morgan Chase, and Chevron which have been around nearly forever.

Berkshire Hathaway’s asset base is dominated by Occidental Petroleum, and its financial holdings are outside the realm of pure growth stock representation. Good stock selection over the Decades drove Berkshire. Yes, Apple, now is dominant, but Buffett eschewed internet plays

early-on. In this top 20 list I own but one piece of paper. It’s Exxon Mobil and I’m not staying married to it forever and a day.