We thought with everything we've seen over the past several months with the Magnificent Seven stocks, we'd revisit a piece we did on why Nintai tries to avoid the fear-of-missing-out (FOMO).
"If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles, and when opportunities came along, you pounced on them with vigor."
- Charlie Munger
During a press conference, President John F. Kennedy was asked whether he got impatient at being unable to accomplish everything he wanted. He smiled and discussed how important it was to be ready to act when an opportunity came along to further his goals. He then told the following story.
“The great French Marshal Lyautey once asked his gardener to plant a tree. The gardener objected that the tree was slow-growing and would not mature for 100 years. The marshal replied: ‘In that case, you better plant it this afternoon.’”
A Tale of Two Returns
For those who have invested in the markets over the past several years, many have noticed a trend of bifurcated returns. The so-called Magnificent Seven (Microsoft, Nvidia, Google/Alphabet, Apple, Meta, Amazon, and Tesla) accounted for roughly 92% of the total gains of the S&P 500 in 2023 alone. As shown in the graphic below, the returns of the Not-So-Magnificent 493 were not impressive. (Please excuse the rather gaudy nature of the Goldman graphic!)
"If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles, and when opportunities came along, you pounced on them with vigor."
- Charlie Munger
During a press conference, President John F. Kennedy was asked whether he got impatient at being unable to accomplish everything he wanted. He smiled and discussed how important it was to be ready to act when an opportunity came along to further his goals. He then told the following story.
“The great French Marshal Lyautey once asked his gardener to plant a tree. The gardener objected that the tree was slow-growing and would not mature for 100 years. The marshal replied: ‘In that case, you better plant it this afternoon.’”
A Tale of Two Returns
For those who have invested in the markets over the past several years, many have noticed a trend of bifurcated returns. The so-called Magnificent Seven (Microsoft, Nvidia, Google/Alphabet, Apple, Meta, Amazon, and Tesla) accounted for roughly 92% of the total gains of the S&P 500 in 2023 alone. As shown in the graphic below, the returns of the Not-So-Magnificent 493 were not impressive. (Please excuse the rather gaudy nature of the Goldman graphic!)
Examining the returns of the Magnificent Seven (M7) over the past several years makes it clear that investing in multiple stocks from this group is essential to outperform the S&P 500. Beating the S&P 493 would be much easier; however, that's not the index in question, whether it's a fortunate or unfortunate situation depending on your investment stance.
But you don’t have to broaden your perspective too much to realize how remarkable the returns have been with the Magnificent Seven. If you examine the next 42 companies - not 493 - here’s how they compare to the M7.
But you don’t have to broaden your perspective too much to realize how remarkable the returns have been with the Magnificent Seven. If you examine the next 42 companies - not 493 - here’s how they compare to the M7.
Compared to the next most extensive 42 stocks, the M7 appears inflated in terms of market value, sales, and profitability. These companies have 2.5 times the sales and twice the profitability.
Fear of Missing Out (FOMO) Syndrome
I bring this up because Nintai Investments has been one of the investment companies focusing on a much smaller market cap portfolio mix (unfortunately, in our case!). Not all of our underperformance over the past few years can be attributed to this, but it certainly hasn’t helped. Watching day after day as the M7 companies reach new price highs, year after year, hasn’t been the easiest experience. I must admit to feeling a slight tinge of Fear-of-Missing Out Syndrome (FOMO). That said, I believe that not experiencing FOMO is probably one of the top characteristics of successful investors. It is nearly impossible to maintain your investment strategy and invest for the long term when influenced by it.
In this age of Bloomberg and CNBC's 24/7 business news, Reddit stock boards, and meme stocks, it seems that FOMO has become a driving force in modern 21st-century investing. It appears unlikely that an investor (are they really investors? Or would “ gambler “ be a better description?) who puts money into GameStop (GME) stock and observes its daily price fluctuate from $17.46 per share on May 1, 2024, to $30.45 on May 13, $48.75 on May 14, $39.55 on May 15, $27.67 on May 16, and finally $22.21 on May 17 (continuing down to $18.32 on May 23), will be able to outperform in the long run.
Fear of Missing Out (FOMO) Syndrome
I bring this up because Nintai Investments has been one of the investment companies focusing on a much smaller market cap portfolio mix (unfortunately, in our case!). Not all of our underperformance over the past few years can be attributed to this, but it certainly hasn’t helped. Watching day after day as the M7 companies reach new price highs, year after year, hasn’t been the easiest experience. I must admit to feeling a slight tinge of Fear-of-Missing Out Syndrome (FOMO). That said, I believe that not experiencing FOMO is probably one of the top characteristics of successful investors. It is nearly impossible to maintain your investment strategy and invest for the long term when influenced by it.
In this age of Bloomberg and CNBC's 24/7 business news, Reddit stock boards, and meme stocks, it seems that FOMO has become a driving force in modern 21st-century investing. It appears unlikely that an investor (are they really investors? Or would “ gambler “ be a better description?) who puts money into GameStop (GME) stock and observes its daily price fluctuate from $17.46 per share on May 1, 2024, to $30.45 on May 13, $48.75 on May 14, $39.55 on May 15, $27.67 on May 16, and finally $22.21 on May 17 (continuing down to $18.32 on May 23), will be able to outperform in the long run.
If ever there was a case of FOMO driving a stock price, it would be MEME stocks like this. I would argue that much of the Magnificent Seven gains have been MEME stock-like writ large.
Conclusions
As an investment manager, your primary goal is to outperform the greater markets over the long term. To meet that objective, sticking with the process that has brought you
success is critical. Sometimes, that process will underperform. As I’ve said many times, to outperform, it is occasionally necessary to underperform (unless your name is Bernie
Madoff). However, chasing returns driven by FOMO is an almost certain way to pursue highly volatile, short-term gains. This can lead to increased trading costs, a larger tax bill, and the loss of opportunities to let compounding work effectively. At Nintai, our first four years in business were exceptional, delivering significant outperformance nearly every year. The last three years, however, have shown a roughly mirror image. Nevertheless, we refuse to alter our methodology or start investing heavily in M7 stocks like Nvidia (NVDA) or meme stocks such as AMC Entertainment (AMC). Instead, we will heed President Kennedy’s advice from Marshal Lyautey and continue researching our long-term holdings like Veeva (VEEV) and iRadimed (IRMD). In fact, we’ll likely begin this afternoon.
As always, we look forward to your thoughts and comments.
DISCLOSURE: Nintai Investments currently has holdings in Veeva (VEEV) and iRadimed (IRMD). We do not, nor do we intend to take a position, in Microsoft, Nvidia, Google/Alphabet, Apple, Meta, Amazon, Tesla, Berkshire Hathaway, Broadcom, JP Morgan Chase, United Health, Eli Lilly, GameStop, or AMC Entertainment.
Conclusions
As an investment manager, your primary goal is to outperform the greater markets over the long term. To meet that objective, sticking with the process that has brought you
success is critical. Sometimes, that process will underperform. As I’ve said many times, to outperform, it is occasionally necessary to underperform (unless your name is Bernie
Madoff). However, chasing returns driven by FOMO is an almost certain way to pursue highly volatile, short-term gains. This can lead to increased trading costs, a larger tax bill, and the loss of opportunities to let compounding work effectively. At Nintai, our first four years in business were exceptional, delivering significant outperformance nearly every year. The last three years, however, have shown a roughly mirror image. Nevertheless, we refuse to alter our methodology or start investing heavily in M7 stocks like Nvidia (NVDA) or meme stocks such as AMC Entertainment (AMC). Instead, we will heed President Kennedy’s advice from Marshal Lyautey and continue researching our long-term holdings like Veeva (VEEV) and iRadimed (IRMD). In fact, we’ll likely begin this afternoon.
As always, we look forward to your thoughts and comments.
DISCLOSURE: Nintai Investments currently has holdings in Veeva (VEEV) and iRadimed (IRMD). We do not, nor do we intend to take a position, in Microsoft, Nvidia, Google/Alphabet, Apple, Meta, Amazon, Tesla, Berkshire Hathaway, Broadcom, JP Morgan Chase, United Health, Eli Lilly, GameStop, or AMC Entertainment.
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