The market is a fashionable exhibition where bidders assess the value of an asset based off a perceived notion. At times it was perceived that kerosene lamps were the future and those stocks were in vogue. In other times, it was the telephone, or electricity companies, or the internet. Today we are obsessed with AI and the chips that power them.
These cycles come and go but the things that remains constant is the overall market trending higher. If you’re not careful and lean too heavily into an area ripe for correction, you can get caught and it will result in terrible underperformance.
For example, the semis might plunge 10% next week, with some stocks diving by 20%, and yet the market might trend up because it rotated out of tech and into staples, retail, oil etc.
When people ask me about portfolio construction I like to bring awareness to their weightings, from the top down.
How much do you have in tech, healthcare, industrials etc?
Here are the weightings of the largest index fund in America, a composite of the overall market. It is the benchmark most funds mirror and you should too. If you’re on an expert level, this might not apply to you because you know when to pivot and switch up. But for the vast majority of you out there, you should be looking at these weightings ad your tour guide to investing.
