History doesn’t repeat itself but it rhymes – Mark Twain
In the late 1960s and early 1970s there was a group of high quality companies including Kodak and Xerox that led the market and which investors piled into regardless of valuation. Because these were high quality companies, few thought there was much risk in this market concentration. Sound familiar? That’s because the same thing is currently happening with the Magnificent 7. No doubt these are terrific companies – but their valuation has gotten out of line and they will go the way of the Nifty 50 sooner or later. From the start of 1973 to the start of 1975 the Nifty 50 – as they were called – lost about half of their value. These were stocks with brand names equivalent to Apple and Google today and played a similar role in the economy of the time.
As we start the week in which the five most important members of The Magnificent 7 report 4Q23 earnings, it’s worth keeping this history lesson in mind.