Egg Baskets and MP3s

By Geoff Schaefer

Geoff is a Wealth Advisor with Intergy Private Wealth. He writes for The Steadfast Fiduciary to help people live with an abundant heart, open mind, and boundless generosity.

October 27, 2023

Investing can be overwhelming.  So many options. So much information. Even more opinions.

What if there was a way that was shown over one hundred years of data to consistently grow wealth over time? Would this be interesting to you? 

You ever heard the old adage, “don’t put all your eggs in one basket”? This comes from Miguel Cervantes’ work Don Quixote.  In the book, Sancho, Don’s loyal companion, is imploring his master to retreat from a rural countryside where Don had just victoriously freed a group of slaves. Sancho realized the significance of their win and suggested to Don they should leave the area before the constable and his posse arrived- a force that Sancho knew he and Don could not defeat. “To withdraw is not to run away, and to stay is no wise action, when there is more reason to fear than to hope; ’tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.” Perhaps Sancho realized something Don did not, even though victory occurred today, the same location and strategy would not guarantee the same result in the future.

So what does a windmill fighting adventurer have to do with investing?

 Great question.

To which I will ask another question: What is the best stock to buy?

I’ll timestamp this in the fall of 2023. Common answers today may be Apple, Nvidia, Tesla, Microsoft, Berkshire Hathaway, among others.  Perhaps, you are right, today…

Now, which stock will be the best to own for the next 30 years?  You can think for a while, research a lot, maybe build up some conviction, but are you sure? 

In 1990, how did people listen to their music?  Overwhelmingly, it was by cassette tape.  CDs were up and coming and would not be super relevant until the late 90s. A CD player in your car and a Walkman with 60 second skip protection, what could get better than that?  By 2005, CDs were falling dramatically as you downloaded MP3 files to your iPod or Zune (who remembers these?). Napster and LimeWire were probably favorited on your browser around that time as well reaccuse you couldn’t afford to pay iTunes for all of that music.  Fast forward to today, and nearly 80% of music revenue occurs via streaming platforms and surprisingly the 3rd most popular revenue source- vinyl records- the same vinyl that were the music medium of choice in the 1970s.  The takeaway from all this, is the future is crazy!

For more on music check out this: Rise and Fall of Music Sales Formats

Taking the same idea of music platforms and applying it to stock investments, check out the following two graphics on the top 20 companies in the S&P 500 index: The first is the top 20 companies by market capitalization in 1990 and the second is the top 20 in 2023.

Pretty dramatic turnover. If you would have picked the top stocks in 1990 to make up your portfolio, you may have some buyer’s regret.  Of the top 20, only five remained in that by 2023.  AIG went bankrupt in 2008 and five of the top stocks of 2023 didn’t even exist in 1990! So not only was it difficult to predict the best stocks of the following three decades, it was impossible because 25% of the companies didn’t even have stock to invest in!

Below, you’ll see a comparison of those top 20 holdings since 1990 to the actual S&P 500 with all its changes. The top 20 would have given you a cool 7% a year return for 33 years, but the S&P 500 index gave you nearly 10% per year.  In dollar terms, the 1990 stocks would have grown $10,000 to $92,760 while the S&P 500 grew $10,000 to $245,500- two and a half times more!

Now, the goal of your investment portfolio should not be to beat every other investment out there.  That is unrealistic and unhealthy.  An investment portfolio should support your core values and desired future state.  Whether your values are to spend more time with family, to travel more, to give more, you need an investment plan that is realistic and sustainable.  Diversified investing will not guarantee your portfolio is always going up or that you will make more money than your neighbor, but it will allow you to keep on track with a financial plan. Diversification reflects an optimistic outlook on the future and a surrender to trying to predict it. Diversification is admitting to the Sancho in all of us, that we may have won today, and not putting all of our eggs in one basket is not a sign of defeat, but rather part of a wise and measured strategy.


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