1 Mistake to AVOID When You Invest in Stocks Today
5 stocks vs. 4,000.
If you take away one thing from me today, let it be this:
The “stock market” is what most investors call the Dow Jones and the S&P 500.
When you invest in that “stock market,” you’re really only buying into five companies — Apple, Amazon, Google, Microsoft and Facebook.
It does NOT represent all 4,000 or more of the incredible new industries and mega trends that make up the market of stocks.
We cover the companies that are truly revolutionizing the world.
If you stick to what old world investors consider “the market,” you’re going to get left in the dust.
Today, I’ll tell you two ways you can invest in the market of stocks RIGHT NOW for the biggest gains for your portfolio:
The Stock Market is NOT Just the Dow and S&P 500
Today I want to talk about something that may seem inside baseball, or technical or mechanical. However, it’s really important to understand this. In many cases your retirement may be affected by it and certainly your returns from the stock market are going to be affected by it.
This situation is very unusual and I have never seen in my entire career of managing money or being an analyst putting out stock picks through newsletters. We have this unique situation where what people call “the market” for many people is the Dow Jones Industrial Average.
For those who don’t know, it’s 30 stocks. It includes stocks like Apple, Microsoft, American Express, Caterpillar and 3M. You can Google this and you will find the 30 stocks. They take the price of these stocks and divide it by 30. That moves around day to day as the prices of these stocks move around.
The second thing people refer to as “the market” is something called the S&P 500 index. The S&P 500 index is a portfolio or basket of 500 of the biggest companies that trade in the United States. Just to explain a little further, there are two exchanges in the U.S. stocks trade on, one is the New York Stock Exchange and the other is the Nasdaq.
The S&P 500 looks at both of these exchanges and takes the biggest stocks traded on these exchanges and has collected them. That is also considered “the market.” It’s what people refer to every day when you are reading MarketWatch, Wall Street Journal, Yahoo! Finance or any website.
They are generally referring to the Dow Jones Industrial Average or the S&P 500. These companies for a long time that were in the Dow Jones Industrial Average and the S&P 500 used to give you a good indication of what was going on in the overall stock market, even though it’s just 30 companies and 500 companies.
Just to give you some background, there are something like 4,000 companies that trade in the stock market in the United States alone. Around the world, there are tens of thousands of stocks. Nonetheless, these 30 stocks in the Dow Jones Industrial Average and the 500 in the S&P 500 used to give you a good indication of what was going on in the stock market.
As I like to put it, there is what people call the “stock market,” which is these two indices, and then there is the market of stocks — all 4,000+ of them. Right now there’s an issue because of how big Apple, Microsoft, Google, Amazon and Facebook are in the S&P 500 in particular.
Apple and Microsoft are also in the Dow Jones, the other three are not. Nonetheless, those five companies represent 25% of the S&P 500. As a result, if Apple swings around a great or Microsoft, Amazon, Google or Facebook does, then the S&P 500 is constantly fluctuating as a result of five companies.
People in many cases seem to still treat the S&P 500 and the Dow as if they are representative of the stock market when they are no longer representative of it. Largely they swing around because of five companies. You can imagine if five companies are taking up 25% of the S&P 500, the remaining 495 have these tiny amounts of representation in the index.
They are no longer representative of all the incredible things we tell you about. In other words, the big megatrend stocks, all the technology platforms that have emerged in the last 10 years, Internet of Things (IoT), artificial intelligence (AI), blockchain, new energy, precision medicine.
These companies have almost no representation in the S&P 500. If they do, their weights are so small that they are largely having no effect in terms of moving the market. Certainly they have zero impact in terms of the Dow Jones Industrial Average which is dominated by Apple, Microsoft and a lot of very America 1.0 companies.
America 2.0 Companies Will Take Over the Market
What’s my bottom line? Why am I bringing all this up? Today, if your 401(k) is invested in the market — most 401(k)s are invested in the S&P 500 — you are likely setting yourself up for very limited returns.
This is because of the fact the most innovative, growth companies, opportunity-oriented companies, companies that are leading in terms of IoT, AI, blockchain, precision medicine, new energy, emergence of new industries like space, crypto, fintech — all these companies are either not in the S&P 500 or the Dow.
As a result, if you are invested in the S&P 500, which is “the market,” you are going to end up missing out. These are the companies that are setting up to grow. These are the companies of the Fourth Industrial Revolution that are completely revolutionizing every single industry.
There is no industry left in this country — and, in time, around the world — that is unaffected by technological developments we are talking about. You can look at retail, banking, energy, industrial sector — every sector you look at is being revolutionized by what is going on in terms of the adoption, emergence, maturity and commercialization of these megatrends.
However, if you are invested in what people perceive to be “the market,” you are going to end up missing out. Last week I made a video saying it never pays to get too involved with politics with respect to investing or trading.
2 ETFs Better Than the S&P 500 and the Dow
There are two ETFs that you could buy that give you a better shot than the S&P 500 and the Dow Jones Industrial Average.
One is the equal-weighted version of the S&P 500. Going back to what I said earlier, the S&P 500 is a portfolio of the 500 biggest stocks that trade in the United States. That one is weighted by how big a company is. If you look at the S&P 500 today, the biggest company with about a 6% — almost 7% — weight is Apple.
Microsoft is not far behind with some weight over 6%. Then there’s Amazon, Google and Facebook. As I mentioned, those five companies represent 25% of it. So how do you get access, without buying every single small company, to some of the smaller companies in the S&P 500 that do have growth, opportunity are innovation based and are in the Fourth Industrial Revolution?
One way you can do it is by investing in the equal-weighted version. The equal-weighted version means that every single stock gets the same weight. Irrespective if you are Apple, Microsoft or the tiniest company in there, all of them get an equal weight, which is 0.2%.
Now you are getting a representative sample of a lot of small companies, mid-size companies and these giant, mega-cap companies like Apple, Microsoft and others. So that’s one way to get in the Fourth Industrial Revolution stocks that are in the biggest 500 stocks in the United States.
The ticker symbol for that ETF is RSP. Ian and I have mentioned this quite a few times. We track this all the time to show us if more stocks are going up than just those five stocks that dominate the S&P 500 and set the tone for what people talk about.
The second way you can do it that I mentioned in my video last week, which I recommend to you as well, is I believe this is a moment when you want to be invested in smaller stocks. Those are the stocks that capture the innovation of our time. They really capture the Fourth Industrial Revolution.
Many of these stocks have been working on their technology for five or 10 years. They are historically cheap. That’s my judgment and my opinion. For nearly 15 to 20 years we have focused on stocks that are likely to be sure things. Everyone has wanted to copy what Warren Buffett is doing.
In other words, guaranteed returns, no risk. Markets are always changing over time. Those stocks are now, in my judgment, over owned. Stocks of innovation, the Fourth Industrial Revolution and the future is where I believe the growth is going to come.
Over time I believe you will see many of these stocks will become a much bigger part of the S&P 500 and what people call “the market.” However, if you wait until then, you are going to miss out on hundreds of percent, if not thousands of percent, of return.
So the second ETF I mentioned last week is the Russell 2000 ETF. This is a portfolio of 2000 of the smaller companies in the United States. That will give you wide access to a lot of small, fast-growing companies. It does give you a number of companies that represent America 1.0 and are non-megatrend and non-Fourth Industrial Revolution.
Nonetheless, there’s enough of these companies, companies of the new, companies of the Fourth Industrial Revolution, that I believe you will still get a huge benefit. The other place you can go to get stock picks that are exclusively focused on America 2.0, Fourth Industrial Revolution and the new world as it is unfolding, is our services.
The cheapest one and our flagship one is Profits Unlimited. It goes from $49 to $99 per year.
The real opportunity for the stock market is no longer in the S&P 500 or the Dow Jones Industrial Average. It’s in much smaller companies. I have given you two ways by which to get at them. Also, you can get at them by subscribing to my services.
Editor, Profits Unlimited