FINANCIAL FOCUS
MAG-nificent
In this installation of Financial Focus, we will discuss the topic of the top 7 growth mega-stocks, known as the Mag 7. As always, we will provide some education and commentary for the inexperienced and/or uninformed.
In our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), in Chapter 1 – Selecting Stocks section, and the beginning of Chapter 5 – Growth section, we introduce the concept of starting to invest with clear leaders/companies of highly rated industries, and/or major growth stocks with a history of increasing stock price, that have a wide “moat” between them and the competition.
These major stocks that carried the equities market for the majority of 2023-2024 are referred to as the MAG 7. The stocks making up this group include Amazon (AMZN), Google/Alphabet (GOOG), Microsoft (MSFT), Netflix (NFLX), Facebook/Meta (META), Nvidia (NVDA), and Apple (AAPL), most of which are listed in our publication. These stocks are so popular that they even have their own ETF, named Mags (MAGS), appropriately, which is a publicly traded entity.
The return of this ETF exceeded 100% over the last two years, which is at an All-Time High at the time of this blog, while only 22% of the remaining 493 stocks in the S&P were positive for 2024.
These companies are extremely high growth-oriented, possess expensive valuations, and are upper-level risk/reward investments as they are the heaviest weighted holdings in many funds. They generally possess the highest trading volume, including options, and are used as a barometer for the entire market. As noted, they have led the gains over the last two years, but don’t be surprised if these same companies lead the decline when the markets reverse. However, they are also usually the first to rebound after market declines.
The issue with elevated share prices is they can sometimes form a bubble, as more and more investors rush in so they don’t miss the “party”. As you probably know, this is known as FOMO (fear of missing out) that usually ends badly, as the “smart money” tends to sell at the top of the chart or cycle. Think of the popular saying regarding gravity, that states “What Goes Up, Must Come Down.” The reason for this is not specifically physical gravity, of course, but the general concept is understood when applying technical chart analysis. Between day-traders, auto-machine trading algorithms, institutional pre-set levels, and market manipulation, the average investor or casual trader will often fall victim to over-bought, over-sold, and extended price conditions, especially in the short-term.
Every investor, trader, collector, business salesperson, wholesaler, or negotiator, plans to buy low and sell high, but that is easier said than done, and market timing is important. Longer term investors have another saying – “It’s not timing the market, but time-in the market,” referring to the strategy that equities go up over time, and remaining invested is the best approach. This can also be beneficial when holding strong dividend stocks, or bonds, that produce set income as a reward for holding. However, both are still somewhat risky, as dividends can be cut, the stock price can decrease, and bonds require a “freeze” on capital for set period.
The MAG7, are clear conglomerates that, although risky, are least likely to crash and burn, or more importantly, go out of business. It should be a consideration for all portfolios to have at least a small portion of these stocks for the long term, especially after a strong market downturn.
For additional discussions and education, please continue to visit our BLOG section here on ASTRO-FIN, where we provide periodic updates on a variety of topics.
***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.
