No. of Recommendations: 17
This surprised me. Jim often says the same thing about the big companies. I think the top 50 companies are the ones to own.
The best way to phrase is is that the top N companies WERE the ones to own, lately. Basically in the last part of the current/recent bull market.
The question is whether that's a trend you want to extrapolate, or whether you want to believe what was normal in them any many decades before.
I don't have infinitely deep data handy, but for example the biggest 5 stocks underperformed the S&P 500 by a remarkable 4.2%/year in the 29 years prior to the most recent decade. There is no valid reason to suppose that they are better than average firms to invest in.
Sure, the biggest are probably better than average businesses, but their business advantage seems statistically smaller than their degree of overvaluation on a given day. You want your money in a top tier firm at a fair price, not a top tier firm at an exuberant price. Transient overvaluation alone is enough to push a merely large firm into the top ranks of market capitalization, and forever over-allocating your money to what's most overvalued is not a winning strategy.
Jim
