During their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed How Much of the Magnificent Seven Should You Own?. Here’s an excerpt from the episode:
Tobias: I saw hedge fund concentration in the Magnificent Seven. It’s like all time highest as you’d expect maybe, but that could just be buying and holding, could it? What do you think people are chasing that?
Bill: I don’t know.
Jake: [unintelligible [00:27:26] had a pretty good article about that maybe two weeks ago or so. You can feel free to disagree with this if you want, but he was saying that really the only question that matters right now for any kind of allocator and fund is how much of the Magnificence Seven do you want to have exposure to today. You can choose to pick a lot of it and then keep up maybe with everyone else or maybe keep down with everyone else, I don’t know what the answer to that is. Or, do you want to go different from that and you’re going to then look different for better or worse.
Bill: Yeah. I think the answer is you want to keep up or keep down with everybody else if you like your job, which is an unfortunate answer, but that’s how I think the world works.
Tobias: It’s the same problem that we’ve had for the last few years that really they are. Like, they’re spectacular businesses too. There are solid, fundamental reasons for owning them at the same time as there are other not fundamental reasons for owning them. You could make a pretty good argument that it’s a pretty good portfolio. That’s Google and Microsoft, and Amazon, Meta, and whatever else is in there. Netflix, whatever.
Bill: Yeah. Tight entry fee, cash flow yields especially. But they’re growing and they got good returns.
Tobias: Yeah, that’s right.
Bill: It can work.
Tobias: They’re reasonably certain cash flows though I would have thought.
Tobias: Don’t see Microsoft getting headed for its– Google’s not going to get headed. Long enough period of time, everything’s vulnerable, but next short period of time, none of them– [crosstalk]
Bill: I read in the Wall Street Journal, and I do not like this idea. But I read that 10 cents at 17 times earnings and Alibaba is at 10. I’m not sure that I still think that that’s an investment, necessarily, but it could be an intelligent speculation.
Tobias: Yeah, that’s it. I think that too. They probably are going to work out over a long period of time, unless we get into a cold war, hot war. They decide to chop the [crosstalk]
Bill: I think that’s reasonably choppable.
Tobias: Everybody’s a fundamental investor, and then you just run into that’s some real macro, geopolitical macro risk.
Bill: Yeah. But that’s why they trade where they trade. So, is it priced in? We had this with Russia.
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