Herman Jin
Formerly in Asia FICC at Goldman Sachs, Macro & Semiconductor Investing
US index funds like the S&P 500 offer worse return per unit of volatility than momentum stocks. The index's low volatility lets investors use leverage, but in crises its black-swan swings get large, making risk control very hard for retail investors who lever up. With beta on both sides, there is little reason to hold the index; buying it without risk management returns far less than momentum stocks. x.comÂ
US large-cap stocks are at risk if the index fails to hold, because CTAs could then sell about $170 billion, disproportionately hurting stocks that have not fallen much over the past month or two. That makes rotating into software and cloud names risky now. Forced selling by a large investor blown up in AI stocks can also hit hard, with single days seeing over $10 billion dumped. x.com x.comÂ
The S&P 500's elevated P/E masks concentration in just a few stocks, making index exposure less appealing than selective stock picking for risk and reward. Its P/E is well above the ten-year median; digging into individual constituents looks more sensible than buying all 500. x.comÂ
OVL can be one of the best monthly dividend ETFs of all time because it pays double-digit income without capping S&P 500 upside. It holds VOO as its core and earns income from defined-risk put spreads on the index rather than covered calls; its yield rose from about 3.5% to over 10% as it began paying out more option premium. Since January 2020 it returned 196% versus VOO's 178%. It shines in bull and flat markets but adds complexity and can underperform in severe crashes. x.com x.comÂ
Extreme fear has historically offered strong long-term S&P 500 buying opportunities. After VIX spikes above 30, 35 and 40, average 12-month S&P 500 returns were 23%, 28% and over 30%, respectively; after spikes above 40, returns were positive more than 90% of the time. x.comÂ
Buying the S&P 500 as a whole is unappealing because the index forces owners to hold the bad with the good, despite Warren Buffett's long-standing advice to buy it. Plenty of its companies are speculatively valued with no margin of safety, lack predictable sales, earnings or cash-flow growth, or are stingy with dividends and buybacks. The index's initial agreement to immediately include SpaceX, which IPOs next week, makes it even less attractive; its last-minute reversal matters only so much. … Show more
The AI-led S&P 500 peak will likely end somewhere between 2000 and the Nifty Fifty: painful, but not a 34-year Japan-style wait. Breadth is ugly, with record index highs while most stocks bleed; @RestlessCentaur notes over 70% of S&P 500 stocks are down more than 10%. Today's leaders trade around 30x forward earnings, while the 2000 and Japan tops were two to three times pricier. x.com x.com x.com x.com x.comÂ
Holding broad US stocks compounds returns; crash selling and overtrading destroy that advantage. Most would be dramatically richer holding quality stocks or the market for life. The S&P 500 has compounded roughly 10% a year with dividends reinvested; DALBAR's studies show investors lag by 1-3 percentage points or more annually from behavior. Random stock buy-and-hold usually fails: durable quality or broad diversification captures the few firms creating almost all wealth. x.comÂ
Most retail investors who hold concentrated portfolios underperform a diversified benchmark like VOO. Depending on the study, typically 70-85% or more of those holding 10 or fewer stocks trail it most of the time, because of behavioral biases, higher volatility and missing the skewed winners that drive market returns. x.comÂ
The S&P 500's top 30 stocks cost three times as much per dollar of free cash flow as the other 470, despite their stronger margins. Their net margins are 34% versus 17%, but they trade at 5.6x sales and a 1% free-cash-flow yield excluding stock compensation, against 2.3x and 3% for the rest. Half of an index-fund investment rides on those 30 stocks at the richest multiples in modern history. x.comÂ
A disciplined S&P 500 core helps investors avoid panic selling and capture long-term compounding. The index has historically averaged about 10% annually; allocate 30%-60% of investable funds to a broad index fund, invest regularly and double purchases if the S&P 500 falls 10% from its high. Keep the rest for deeply researched growth leaders. x.comÂ
US stocks remain vulnerable because leveraged long positions could amplify an unwind of the mania. The SPY-versus-long-Treasury trade has given back only a few weeks of its gains. x.comÂ
