He was trading mostly based on his personal intuition. It quickly became apparent that things like income statements, balance sheets, and valuations played no role in his process. Then I asked what fundamentals he looked at. When I asked what his process for selecting stocks was, he cited message boards and CNBC.

I was playing with a young man who had just started to dabble in the stock market. The idea for the Dobermans of the Dow originated on a golf course.

Due to regulatory changes that limit my ability to publish backtest data going forward, this will be my final one. I’ve been doing annual updates ever since. Six years ago, I introduced Forbes readers to a stock strategy called the Dobermans of the Dow. One way to hedge that flow dynamic is to make sure you also have a strong fundamental bent to your portfolio. Flows matter a lot more in the modern market that’s becoming increasingly dominated by passive funds. I don’t know if that will happen, so please don’t interpret it as a forecast. If 2024 turns out to be another tough year, flows may turn south again, and the most widely owned names like the Mag 7 may struggle again. In 2022, inflation caused financial conditions to tighten considerably, which led to staggering losses for companies like Tesla (-65%), Meta (-64%), and NVIDIA (-50%). In a year like 2023-when a bunch of money moved off the sidelines into the equity market-the biggest passive beneficiaries surged by triple digits.īut the year prior was a different story. However, passive flows can go the other way, too. If regulators are serious about punishing monopolistic behavior, maybe they should look at how these monopolies are funded? If passive share keeps climbing, so will the valuations and financial resources of these corporate goliaths we call the Magnificent 7. In other words, one day of passive inflows outmatched the entire antitrust fine. Given that Google’s parent company, Alphabet, represents about 3.7% of the S&P 500 index, that passive inflow benefited Google to the tune of about $770 million. One thing that may help explain that is the SPDR S&P 500 ETF (SPY) raked in a record single day inflow of $20.8 billion that same day. The day of the announcement (December 19) the stock finished up.

It seems like a lot of money, so one could easily surmise why news like that might put a dent in the stock price. As more people pour capital into passive vehicles that track popular market-cap weighted benchmarks like the S&P 500 and NASDAQ, this disproportionately benefits the largest companies.įor example, Google was fined $700 million last month to settle antitrust complaints brought by the attorneys general from three dozen states.

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