Eric Zizich:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Great to be with you, David.
David Nelson:
Thank you. Appreciate the offer coming in today.
Eric Zizich:
Definitely. Now, in the past couple of years we’ve seen big tech companies get an impressive $1 trillion market capitalization. So some of caution, okay, we could repeat the tech bubble that we saw back in the 1990s. What do you think about that dynamic?
David Nelson:
So certainly it’s a possibility. We’re at levels that we haven’t been at as far as since 2000, which was the tech bubble. If you look at the graph that we brought in today, we have 10 stocks that make up 25% of the entire S&P 500. So we’ve got 490 stocks here and we’ve got, in this 25%, 10 stocks of which we have four of them now that have gone through the trillion dollar mark, which is what you referenced. So Apple’s the big daddy back at 18, Microsoft, Amazon, Facebook. So we’re seeing more and more movement as far as in that area as far as size.
David Nelson:
Now having said all of that, if you look at 2000 as far as the profits that were made from the 10 back then in comparison to the other, technology is a much smaller percentage today than it was back then. So to me, this isn’t something that, again, people should panic over. I think it’s overblown as far as the discussion that’s taken place as far as in this area. I don’t see it as being a crisis at this point in time.
Eric Zizich:
Those are impressive numbers though, so then maybe elaborate more on what you think that will do to investments in the stock market.
David Nelson:
Sure. So if you go back to the ’70s, 10 stocks contributed 35% of the index. That was really bloated as far as back at that point in time, today not so much. Overall, if we look at the stocks that are in there and we look at the index as far as that’s there, the amount that’s being attributable to technology actually as far as the gross number has increased pretty dramatically while the net profits are at higher levels as well today in comparison to 2000. So again, big picture wise, I don’t think this is anything that people need to panic over. I think overall we’re talking about something here that can be handled and the markets are doing a very nice job as far as the cap weighted market that that is.
Eric Zizich:
That’s good news up and do you expect that trend to continue?
David Nelson:
We do and I’ve got a chart for that, that I just wanted to just briefly show people as far as the comparison between the cap weighted index and the equally weighted. So the S&P 500 is cap weighted, that’s in blue. And then if we look at all the stocks being equally weighted during the same window over a two year period of time, that would be the yellow line. So you can see if you haven’t owned large company stocks during this period, you’ve certainly underperformed and unperformed in a pretty significant way.
Eric Zizich:
Absolutely. Well, thanks for giving us the picture of what to expect.
David Nelson:
Absolutely.
Eric Zizich:
Thanks for joining us, David.
David Nelson:
Thank you, appreciate it.
Eric Zizich:
As always, if you miss any of our conversation you can find it all that’s on OurQuadCities.com.