The Magnificent Seven


At the time of this recording, the stock market is pushing nearly double digit returns year to date in the first half of the year. Almost 10% in the first half of 2023.

If you had these as part of your financial plan, you could be well past your target for the first part of 2023. 

But the problem is the majority of these returns have come from just a few companies in the S&P 500. And the truth is, not everyone has these companies in their portfolio.

So it causes panic and induces FOMO, rushing to get to where the grass is greener by changing their portfolio.

But that’s not the right approach to handling this situation.

In today’s episode, you’ll discover who the Magnificent 7 are in the S&P 500 and why they can generate wildly high returns in a small amount of time. Plus, I reveal how you can handle your portfolio (even if you missed the bull run).

Listen now.

Show highlights include:

  • Why the S&P 500 is a better representation of the health of the stock market than the Dow Jones. ([2:51])

  • The underwhelming truth about the impressive returns of the stock market (and why only 7 companies prop up the entire market). ([4:07])

  • Why the Magnificent Seven are the leaders in the current stock market and in the world. ([7:13])

  • How the returns from the Magnificent 7 will affect the other 493 companies in the S&P 500. ([8:40])

  • Why chasing returns is the wrong move even if you don’t have the Magnificent Seven in your portfolio. (and the right thing to do if you don’t have these companies in your portfolio).  ([11:20])


Do you want a wealthy retirement without worrying about money? Welcome to “Retire in Texas”, where you will discover how to enjoy your faith, your family, and your freedom in the State of Texas—and, now, here’s your host, financial advisor, author, and all-around good Texan, Darryl Lyons.

Darryl: Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group, and you’re listening to Retire in Texas. Thanks for tuning in. I want to remind you, as usual, this information is general in nature only. It’s not intended to provide specific tax, investment, or legal advice. Visit PAXFinancialGroup.com for more information.

I also want to tell you, when you get a chance, there’s a free e-book on our website, and you can do it on your mobile, too. Just go into PAXFinancialGroup.com, go in the menu and then there’s resources. We’ve got a bunch of e-books there that we’ve developed. [01:05].8]

Our most popular e-book is the Biblically Responsible Investing e-book. Grab that one. Check it out. You might find it to be interesting. You can just kind of go through it at your own pace, and I want to just invite you to download that e-book. It’s a way for us to just educate you on how that works.

This specific podcast is going to be about the stock market, and I’ve got one thing at the end, towards the end, that I need you to be aware of in the stock market. I’m going to set the stage for that one thing. I’m going to give you some information that’s really, I think, going to be enlightening, we’ll see. This is the stock market, so some people, it’s just not their thing, but hopefully, I’ll present it in such a way that it just educates you on what’s the reality of what’s going on out there. [01:48].0]

What’s interesting, though, I think a lot of people don’t know this that the stock market has done really, really good this year, and so this show is really distributed in the end of the first half of 2023 and a lot of the content that I’ve developed for this particular show was built with information in June 2023, so things are changing day to day. But at the time of this recording, the stock market is pushing nearly double-digit returns year to date in the first half of the year, nearly double-digit returns.

If you add in a little dividend that was paid from the stock market, because these companies that have profits to pay out a dividend, if you add that dividend in there, we’re pushing 10% in the first half of 2023, so pretty incredible returns. If you were looking at your financial plan, you would say, “Those returns are more than enough for me to meet my objective, especially if it’s just one half. If I get that in the second half, I’m doing great.” [02:51].4]

But let me give you some context here. First of all, I’m using the S&P 500, which is an index developed in the late-50s, to measure these results. A lot of times when you’re turning on the news, you see the Dow Jones Industrial Average.

The Dow Jones, I don’t know why necessarily, but it’s used on most major networks to give everyone a pulse of the stock market, but it only has 30 stocks that it tracks, so it doesn’t really give a broad representation of the health of the stock market. Most financial institutions don’t use the Dow, although the media does use the Dow. Most financial institutions reference the S&P 500, because 500 companies are a better representation of the health of the stock market than 30, for obvious reasons. When I talk about the stock market doing well in the first half of 2023, I’m referencing the S&P 500, the 500 largest companies in the United States. [03:58].1]

But here’s the problem. It’s not a material problem, unless you really mess this thing up and there’s one thing that you can do, and I’m going to try to help you avoid this one thing. But the problem is the majority of the returns of the first half of 2023 have come from just a handful of companies. They’ve come from just a handful of companies, and how big is that handful? There’s different people that have evaluated that handful and said that there’s 20 companies, there’s five companies. I’m going to reference seven companies that make up the majority of those returns that we’ve experienced in the first half of the year.

I’m going to tell you those companies, but let me put this in context real quick. Those seven companies, their returns that they provided to investors in the first half of the year, and they’re included in the S&P 500, if you were to take out those handful of companies, you might have actually lost money in the S&P 500. The majority of the returns in the stock market this year came from only a handful of companies. [05:09].3]

But what does that mean to you? Is that dangerous that the concentration of stock-market returns only came from just a handful of companies? Is that dangerous to you? I’m referencing seven companies called the Magnificent Seven, and the Magnificent Seven is a play on the movie in the 1960s with Charles Bronson and Steve McQueen, and actually, I think read done with Chris Pratt and Denzel Washington, The Magnificent Seven, the Western movie. I haven’t seen them, but I’ve heard they’re good movies.

The Magnificent Seven is a reference to those movies and it references seven companies that make up the majority of the stock market returns, and that would be Apple, Microsoft, Nvidia, Amazon, Meta, Tesla, and Alphabet, also known as Google. Those seven companies have made up the majority of the returns in 2023. [06:12].3]

It’s not as though we haven’t created themes in the past to reference concentration of stock market returns. In the ’60s, in the ’70s, we had something called the NIFTY 50, which was a larger representation, but those were 50, blue-chip big companies that really drove the economy and really provided the leadership. We had something called the Four Horsemen in the ’90s. That was Microsoft, Cisco, Oracle, and Intel. Then some people just recently, may remember the FAANG stocks, Facebook, Apple, Amazon, Netflix, and Google. So, we have created themes around stocks that provided leadership into the economy and we’re doing that again with the Magnificent Seven. [06:57].1]

The Magnificent Seven have been really the catalyst in the leaders in the stock market and the result has been wonderful for all of us who were able to enjoy those returns. In fact, I would say the Magnificent Seven were a byproduct of artificial intelligence innovation, and I did discuss what artificial intelligence is in previous podcasts that you can reference. But they are the ones, because of their ability to deploy capital and have the human talent, they’re able to really start to develop artificial-intelligent innovation, and that is why they have been the leaders in this market.

Now, there’s been some peripheral ones, AMD and Royal Caribbean, but the Magnificent Seven have shot and killed this cocaine bear market, so there’s a play on movies there. But they basically killed the bear market and moved us into a bull market, these Magnificent Seven. [08:05].0]

The bull market started on October 13, last year, and as a result, the bull market, by definition, is a 20% return in the stock market. The question is, are these returns of the Magnificent Seven sustainable? I mean, we’re talking about, individually, some of these returns have been up 30%, 40%, 20%, 50%, depending on the week. I mean, incredible returns. Can this continue or is this just artificial intelligence like craziness?

I think there’s a better question here. I think that’s a good question, but the better question is what about the other 493 companies? Remember the S&P 500. We have seven that are doing really well that are counting for the majority of returns. What about the 493 other companies in the S&P 500? What about them? They’re down or negative. [09:00].8]

These seven companies are, I would suggest, acting like a magnet that will pull up these other companies. This is obviously pontificating, but in a likely scenario, it’s a boost of confidence for the overall stock market and that then allows other investors a window to say the storm clouds are moving and it appears that the Federal Reserve is slowing down, and they start shopping.

When these managers and when investors start shopping, sure, they’re going to look at the Magnificent Seven, but the prices of those stocks have gone up quite a bit. Think of it this way. Think of having rental houses, and you have 10 rental houses and one of them has done really, really well and the other nine are not doing that good. [10:11].8]

That one that did really, really well, you’re like, Man, I wish I would have bought a lot more of those types of houses. The problem is the returns that you got on that one house was a byproduct of a golf course moving in, and so having returns continue on that one house is not likely. I hope that makes sense to a certain degree. But what I’m trying to tell you is, don’t chase returns. That’s what I’m telling you.

Let me give you another analogy real quick, because I don’t know if that one hit as hard, now that I think about it. But one of the things that, and this is not really an analogy, but this is just the reality of how life works, when I’ve seen over and over again, over the years, somebody trying to manage their own 401(k), they look at the previous six months or one year of their investment and they say, “Man, my investment return hasn’t been that good. I’m going to switch to a different investment.” [11:11].2]

Then when they make that switch, the one that they got out of ends up performing better over the next 12 months. So, I want you to be very, very careful that you don’t chase investment returns, because you might look at your portfolio, and I’ve seen this across the country, you might look at your portfolio and find out that your manager or your ETF did not have a lot of Magnificent Seven stocks in them.

I’m going to share with you an example. Dodge & Cox, one of the biggest fund companies in the entire world. We actually don’t own it. It’s actually too big. There’s problems when funds get too big, but it’s a great example. They’re smart. They’ve been around a long time. They have a lot of capital, Dodge & Cox, and let me share with you their holdings. Their top holdings are Occidental Petroleum, Alphabet, a France company Wells Fargo, Charles Schwab, Pfizer, FedEx, Capital One, Raytheon, and MetLife. Their top holdings include one of the Magnificent Seven, just one. They’re not dumb people. [12:13].2]

What I’m telling you is you’re going to find a lot of your fund managers and your exchange traded funds that did not overly concentrate into the Magnificent Seven, and you might actually see in their returns of the funds that you own and the exchange traded funds that you own, that are materially or more even marginally less than the S&P 500. If you see that, I do not want you to switch money lanes.

I’ve talked about this before. Switching money lanes is like when you go to Austin and you’re in traffic, and you’re just sitting there in a lane and it’s just standstill, and you switch lanes because the lane next to you, the middle one, is going faster, and then, all of a sudden, the middle one becomes the slowest lane. It’s just frustrating, because you keep switching lanes in traffic and you’re always ending up in the slowest lane and you’re not getting anywhere. [13:00].6]

That happens with investments all the time, and it’s my conviction that that could happen to you if you look at your fund—and maybe you got lucky and you own a fund or index or whatever that owns a bunch of these Magnificent Sevens. But maybe you didn’t. Maybe they didn’t have a lot of the Magnificent Sevens—and so I don’t want you to switch money lanes because the other 493 companies or whatever, there’s a lot more out there, I believe the Magnificent Seven will act like the magnet and pull them up over time.

I believe that there will be confidence that will move into that direction of these other companies that are actually, in a lot of ways, priced less. I think the idea of owning the Magnificent Seven could continue in perpetuity, I don’t know. It’s everyone’s question mark. But what I don’t want you to do is switch money lanes. [13:53].0]

That’s the main point I want to try to make. It’s that if you understand why certain investments behave certain ways, you will not make any irrational decision that will cause you to fall behind. I’ve seen it so many times. I have personally done it. I don’t do it anymore because I recognize that that’s a behavioral issue, but I’ve personally messed up. It’s been a while, a long time, where I’ve switched money lanes and been like, Oh man, why did I do that? And I’ve created this thesis and this theory. But the reality is I stick to the plan. You can make marginal changes if you need to, but if you find that your funds or your investments did not overly invest into the Magnificent Seven, that’s okay. Stick with the plan. Check with your advisor. You can make marginal changes, but don’t make material changes by shifting and then regretting it, and that’s the main point I want to try to make today.

I hope that helps. I find it to be helpful when you are thinking about your investments in a logical, rational, and not emotional way. And remember, as always, you think different when you think long term. Have a great day. [15:06].0] This is ThePodcastFactory.com


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