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Welcome to Fantasyland

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Summary

The stock market is experiencing a new "melt-up mentality" reminiscent of the dot-com bubble. A small number of stocks are dominating the market, but data shows that more careful selection of stocks in the same index can offer greater returns at a lower premium. History has a way of repeating itself, and investors should be mindful of this in order to make informed decisions.

Q&As

What is the discussion about the current market?
The discussion about the current market is about the artificial intelligence (“AI”) “melt up” and the market's performance being dominated by just a handful of companies.

What are the seven stocks that dominate the Nasdaq 100?
The seven stocks that dominate the Nasdaq 100 are Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Amazon (AMZN), Meta (META), Alphabet (GOOGL) and Tesla (TSLA).

How much faster are the top 30 stocks in the Russell 1000 Growth index growing compared to the top 30 during dot-com 1.0?
The top 30 stocks in the Russell 1000 Growth index are growing at less than a third of the rate they were at the prior peak (49% today vs. 175% then).

What are the advantages of being more selective when investing in the same index as the top 30 stocks?
The advantages of being more selective when investing in the same index as the top 30 stocks are that investors can find stocks that are cheaper, have greater earnings growth and more likely to perform better than the top 30.

What is the moral of the article?
The moral of the article is that no matter how much lip service investors give to learning the lessons of the past, they really are like a herd and they fear missing out on something big. For everybody else, bucking that trend isn’t always easy, and there are profitable high-growth stocks that the data suggests will compound at rates far above the index.

AI Comments

👍 Herb Greenberg does an excellent job of highlighting the dangers of chasing the latest and greatest stock market trends. He also provides valuable insights into how investors can make more selective and informed decisions when investing in the markets.

👎 Herb Greenberg's analysis of the stock market is overly optimistic and doesn't take into account potential risks and market corrections. He also fails to provide any concrete advice on how to make the most of investments in the stock market.

AI Discussion

Me: It's by Herb Greenberg and it's about the fantasyland mentality in the stock market right now. He talks about how investors are chasing the latest trends without considering the real story and how AI has jump-started the market. He also talks about how the biggest stocks are overpriced and growing slower than the dot-com 1.0 stocks, so investors should consider stocks that are growing faster and are cheaper.

Friend: That's really interesting. It sounds like investors need to be more selective when choosing stocks, and not get caught up in the hype.

Me: Exactly. There's a lot of talk about AI stocks, but we don't know which ones will actually be the winners in the end. The article makes a good point that if you choose stocks carefully, you can find ones that are growing faster and are cheaper than the top stocks, and that have the potential to outperform the broader index.

Action items

Research the stocks mentioned in the article and compare their performance to the broader market.
Consider diversifying your portfolio to include stocks that are cheaper and growing faster than the top 30 stocks in the Russell 1000 Growth index.
Monitor the performance of the top 30 stocks in the Russell 1000 Growth index and be aware of the potential for market concentration and overvaluation.

Technical terms

Melt-up Mentality: A term used to describe a situation in which investors become overly optimistic about the stock market and buy stocks at high prices, expecting them to continue to rise.
Dot-com 2.0: A term used to describe the second wave of the dot-com bubble, which began in the late 1990s and ended in the early 2000s.
AI: Artificial Intelligence. A type of computer technology that is designed to mimic human intelligence and behavior.
Melt-up: A term used to describe a situation in which investors become overly optimistic about the stock market and buy stocks at high prices, expecting them to continue to rise.
Insane: Extremely foolish or irrational.
Quantamental: A term used to describe a combination of quantitative and fundamental analysis.
Russell 1000 Growth Index: A stock market index that tracks the performance of the 1000 largest companies in the US by market capitalization.
Multiple Expansion: A term used to describe a situation in which a company's stock price increases due to an increase in the company's price-to-earnings ratio.
First-mover Advantage: A term used to describe the advantage that a company has when it is the first to enter a new market or industry.
Compounding: A term used to describe the process of reinvesting earnings to generate additional earnings.
Indexing: A term used to describe the practice of investing in a stock market index, such as the S&P 500.