The Magnificent Seven, Warren Buffet and the Bonsai Tree

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The Magnificent Seven, Warren Buffett, and the Bonsai Tree. Yeah. Anyway, I got to talk a little bit about the Magnificent Seven. Get a lot of questions about the Magnificent Seven stocks and you take a look at how they’ve done your Amazon, Alphabet, Meta, and Nvidia, Tesla, Microsoft, and then the rest of 493 S &P 500 stocks. Parabolic.

Parabolic as far as the rise in these companies and some of the numbers, the internals when it comes to things, it’s staggering. If you were to combine the market capitalization of all of these companies, it would be the second largest country stock market in the world. Second largest, double Japan, crazy, but France.

Microsoft, I mean, this is nuts. The size of the magnificent, it’s bigger than China, it’s bigger than Japan, bigger than India, bigger than France. Apple is bigger than Saudi Arabia’s. I mean, you can go right on down the line and the size of these companies and their market capitalization. But are they expensive? That’s a question everyone asks. Oh my God, take a look at the valuations. Take a look at how these things have run up.

Not like that, you take a look over the past month, you’ve seen other companies outside the Magnificent Seven in the same kind of sphere as tech is concerned, whether it be Arm, whether it be Palantir and the rise in these stocks and how quickly that they have come up. Again, these are companies that are profitable. The Magnificent Seven is profitable. I want you to follow along with me here.

Um

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Apple makes 60 % of the profits of all French stocks together, over 50 % of Germans. Again, the whole seven makes as much in profit as all Japanese stocks and half of the entire Chinese stock market. That’s how big these companies are. But again, look at those charts, look at how they’ve gone, when will it end? Well, how has this happened?

How does this happen? Because, again, over the past several years, you’ve seen great quality companies talk about market breadth that have lagged, that have lagged, that haven’t done as well. What we’re experiencing right now is, you want to call it FOMO. It’s not so much FOMO. I guess it is to some degree when it comes to hedge fund managers and money managers out there.

They’re almost more afraid of not making money rather than losing money. And that type of money manager, that type of fund manager is very, very dangerous. I have seen this movie before and I know what happens in the end. So you keep looking at these stocks, I keep going up day after day.

day, week after week, month after month. Now, why do these managers, why do they get so nervous about these things? Why am I not nervous about these things? Well, I’ll explain to you why. Many money managers, including hedge fund managers, they get paid a ridiculous sum of money. They charge it. People are dumb enough to pay him that type of money. Sorry, they are. If you’re not familiar with what two and 20 is.

2 % of the assets that they manage plus 20 % of any profits, any money made over the course of that year. You understand that? Are you following what that is? Let’s say, um,

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Let’s say you take $100 ,000. They’re already charging $2 ,000 to manage that. And then if it goes up, they make a profit of, let’s say, $10 The fund goes to $110 ,000. They’re taking 20 % of that as well. That is very, very expensive. Now, they might be able to get away.

for a short period of time. They might be able to get away with maybe a year of underperformance, but eventually people, they get angry. They say, wait a second, I’m paying all this money in commissions, all these crazy commissions, and you can’t even keep up with the S &P 500? Magnificent Seven’s blowing this away. Why am I gonna continue to work with you? So again, these managers, they become fearful. They’re like, oh my God.

I’ve got to get involved. I got to be involved all this. And then they start moving all of their money in this direction. And again, these are quality companies, but it becomes very, very dangerous. And this is what happens when you have to go ahead and you have to outperform every single year based upon the type of fees that you charge. You see, I have the freedom to manage.

each and every client’s portfolio the right way, protecting their downside. Will we have years where we underperform? Absolutely. It’s going to happen for certain clients, other clients, maybe not. Again, everyone’s situation is unique. It’s all based upon where they are and their risk tolerance. If you think that my, I’ve got a client who’s doing drawdowns in his portfolio and is living off that money,

If they’re 100 % invested in that Magnificent 7, that’s stupid. I would never do that. We have to protect downside. But let’s take somebody that’s 45 years old. That doesn’t matter right now. They’re not going to use this money for the next 25, 30 years. Yes, you can afford to be more aggressive. Now, if you are a 220 manager and you got to blow away returns to justify your reason for existence, you start doing dumb.

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things. I talk about seeing this money before. Again, when Markowski Investments was in its infancy, back when we started in 1990s, again, you had all the dot com run up and everybody was a genius. Everybody, oh my God, every company’s going up, every dot com stock. Now, again, the market was much more overvalued than it was now. Again, we’re talking also as well a lot, many, many companies that were just crap.

And we knew they were crap, but it didn’t matter. Everybody wanted to be involved and him. Oh yeah. You know, sell my high quality stuff. Sell my blue chips. I want to be involved in tech. I’ve talked about this before. A great money manager over the long run who lost billions upon billions of dollars that couldn’t help himself. Did the same thing. Got sucked in Stanley Druckenmiller. He couldn’t stand it.

He couldn’t stand following his rules. He couldn’t stand not to underperform. That’s an enormous amount of pressure. He fell victim. He even admits to it today. He said, I didn’t learn anything from the billions of dollars I lost during the dot com collapse because I knew what I was doing was wrong. I just did it anyway, which is rare when you see people actually admit to mistakes like that. Now, where does Warren Buffett and the bonsai tree come into play? Well,

Warren Buffett’s story came out talking about how Warren Buffett and that they own a significant amount of Apple. And he got into Apple much, much later than we did. But he sold 1 % of its shares in Apple over the last quarter, last three months of 2023. Still has a 5 .9 % stake that’s worth $167 billion. So what did Warren Buffett do?

Did he sell his entire position in Apple? No. No, he trimmed his position. This is where I go to, and I think of Mr. Miyagi in Karate Kid. And he’s, you know, Daniel’s son sees his bonsai trees and he’s asking him about his bonsai trees. And he’s like, picture tree. And then, you know, cut here, snip here. That’s what good,

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manage money managers do. That’s what good advisors do. When things are racing through the roof, you tend to be a little bit more cautious and there’s nothing wrong with taking profits off the table. Like you’re managing a bonsai tree, you cut here, you snip here. Many value companies, high quality companies that have been paying dividends, they’ve underperformed. So what?

So what there’s still quality companies or good places where you can warehouse some of these profits and protect your downside. There’s nothing wrong with that. Assets will eventually rotate. The markets will change. Do I know when that’s going to happen? No, I don’t. And again, you don’t parade a million people on TV that tell you that they know when that’s going to happen. See, I don’t play.

Guessing games, I don’t play roulette with my clients’ money. That’s not something we do here at Markowski Investments. It’s not prudent. Again, these guys out there put themselves into these positions because they charge ridiculous fees to manage people’s money. Again, I think you need an ethical bypass at birth to do stuff like that. But again, no one’s holding a gun to anybody’s head to go working with these fools. Again. Get your portfolio managed the right way. Watchdog on wallstreet .com. Watchdog on wallstreet .com.