The Magnificent Seven

There's an old expression about Wall Street prognosticators that goes: There's those that don't know and there's those that don't know that they don't know. I know I don't know after investing for close to forty years. You can make an educated guess as to where the market is going (and it's usually up about 75% of the time), but just stick with S&P  500 index funds and you'll double your money every seven years on average. During the current bull market, your investments went up close to 100% in S&P 500 index funds in just over four years. That's a great return.  Many investors are bearish on the market and have done poorly. As John Maynard Keynes so aptly put it, "The market can stay irrational longer than you can stay solvent." 

Back in 2013 the acronym FAANG entered the lexicon of equity investors. Originated by trader Bob Lang and popularized by CNBC's Jim Cramer, it epitomized the large cap growth stocks for more than a decade. FAANG stands for Facebook, Amazon, Apple, Netflix and Google. You'll note that the majority of these stocks are still leading the market except for Netflix. Although a great company, Netflix is no longer a growth stock. Times change. For the last few years, FAANG stocks have morphed into The Magnificent Seven, or Mag 7 as they're  called. The Mag 7 consists of Apple, Alphabet, Meta, Nvidia, Microsoft, Amazon and Tesla. Many of the stocks remain the same but their names have changed.  

Most of these corporate behemoths are going to be here for the foreseeable future, but not all are going to make it. Just look at Netflix. It was supposed to grow to the sky, but the stock price has been cut in half the last couple of years. They are no longer a Wall Street darling. An option for Netflix is to buy NFL and college football broadcasting rights to goose their subscriber base, but that's going to cost money.

Currently, the Mag 7 stocks are in an enviable position. We're in an AI race with China and breaking up these conglomerates would put us behind the eight ball with the PRC. The question remains, which one or which ones are going to fall by the wayside? Many investors thought Meta would remain severely depressed, but they recently released a personal AI agent called Muse which brought the company back into the competition. With over two billion Facebook users, Meta is a formidable opponent. In addition, Meta has Mark Zuckerberg as its CEO and entrepreneurial CEOs are usually a plus. 

Although Nvidia and Apple have outperformed the S&P 500 on a year-to-date basis, the remaining members of the Mag 7 have been laggards. Tesla has negative returns for the year. Elon Musk has stated that he may merge Tesla and SpaceX next year, creating an organization that you would read about in a dystopian science fiction novel, but that is months away. Plus, it will have to get approval from the SEC (Security and Exchange Commission). 

I'm not smart enough to pick the winners and don't invest directly in the Mag 7 stocks, but I still own them in my pedestrian S&P 500 index funds. They command a huge percentage of market cap weighted S&P funds and ETFs. Approximately 35% which is a huge concentration risk. I'm willing to take that chance because historically, only a handful of stocks are big gainers in the index. That said, if you examine the top American stocks going back 50 years, the top ten equities in the index tend to change from decade to decade. Investors seem to believe that the Mag 7 gravy train is going to go on forever. It's not. It never does.

It's been about twenty years since the digital oligopoly began its ascent. What began with modest means is now a cadre of CEOs worth trillions of dollars. The law of large numbers doesn't apply. At least not yet. Which company will become the next Kodak, Xerox, GE, Blockbuster Video or Borders Books? I don't know, that's above my pay grade, but some of them are going to fall. I hope I'm wrong, but history doesn't repeat itself, but often rhymes.

Bukowski

Charles Bukowski needs little introduction to the literati of the mid to late 20th century. A prolific writer of short stories, novels and poetry,  he was the king of counterculture going back to the 1960s. Although he lived in a variety of places during the 1940s and 1950s, it was Los Angeles that he called home after the Vietnam War began. The subject matter of his work is primarily about the underbelly of the City of Angels. What Donald Goines is to Detroit, Charles Bukowski is to Los Angeles. For a five year period during the late 1980s, I read anything of his I could get my hands on. His novels were great and I particularly liked his short stories.

I had some downtime recently and was surfing Amazon Prime for a movie to watch and came across a 2003 documentary, Bukowski: Born Into This. Although critically acclaimed, I really couldn't get into it. I watched half of the presentation and then stopped streaming. I got the gist of the story but Bukowski's schtick seemed antiquated. The chain-smoking and excessive drinking are outdated and that's what he did for the first hour of the movie, if not his entire adult life.

I recently read some of his "Notes of a Dirty Old Man" columns from the Open City underground newspaper going back to the Lyndon Johnson Administration. Bukowski is very funny which is why I enjoyed reading him in the first place. It's a shame it doesn't translate well on film. 

The first book I read by Bukowski was Erections, Ejaculations, Exhibitions and General Tales of Ordinary Madness. The book is out of print, and if you want a new copy, it will set you back $1,200 or thereabouts on Amazon. The material in the book is still in circulation but published in different collections of his stories. One is titled Tales of Ordinary Madness. I prefer the original title and it irks me that everything is sanitized now. Although many writers are on television talk shows and podcasts these days, I don't think it would have been a good fit for Bukowski. If he were alive today, I believe he would have been content to remain in his hovel, hunched over a Smith-Corona typewriter, smoking roll-your-owns and drinking whiskey. 

There's not a lot more to be said about Bukowski that hasn't been said already. Just look at his Wikipedia page. He's the subject of documentary films, was influential in pop culture of the previous century, and had an enviable creative output. It's because of writers such as Bukowski, Hunter Thompson, Jim Thompson and Richard Stark (a pseudonym for Donald E. Westlake), that I have a difficult time reading fiction these days. I know that there's good if not great fiction writers out there, there has to be. For some reason, I've transitioned to nonfiction. Probably because the truth is stranger than fiction. You don't need to read Faharenheit 451, books are being banned nationwide. You want the newspeak, doublethink, thoughtcrimes or the cult-of-personality in 1984, look no further than The White House. 

When I was a kid, I collected U.S. Commemorative stamps. That's what kids did in the 1960s, stamps, coins and baseball card collecting. I had a fairly sizable collection including first-day issues in an H.E. Harris Liberty binder. Ten years ago I went to a stamp and coin dealer and tried to sell it. The proprietor told me that the entire collection was worthless. Nobody collects stamps anymore and there's not a market for them was the rationale. He had a valid point. It's basic economics. If you don't have a buyer, you can't have a seller. Bukowski died in 1994 at the age of 73 from complications of leukemia. I'm approaching that age and it makes me think. I hope Bukowski has a longer shelf life than my stamp collection. Like he said in Factotum: "The world is filled with shipping clerks who have read the Harvard Classics.". 

Disrupters At The Gate

I recently finished reading Disrupters at the Gate by Jeffrey Cole and Harlan Lebo. A very good book but not outstanding because it dragged somewhat in the last few chapters. What let me down was a lack of actionable investment information to help buttress my stock portfolio. That said, throughout the book it gives terrific histories of once stalwart organizations that failed to adapt to changing times. Xerox and Kodak come to mind. One chapter is dedicated to Blockbuster Video and how Netflix dethroned them because they envisioned the future and transitioned to streaming. 

Yesterday, CNBC ran multiple segments on Netflix. They just reported another disappointing earnings report. Although Netflix has a limited slate of NFL games, they don't have enough football on the platform. That's where the action is. Something like 92 of the top 100 television shows are either NFL games or college football. Most of them are NFL. Although the broadcasting rights are expensive to acquire, it's what the American public wants. Netflix stock has been walloped the last few years after being a Wall Street darling for well over a decade even though they carry combat sports and European football. 

Gen Alpha and Gen Z, the preferred advertising demographic for video content, have much shorter attention spans than previous generations. Free services such as YouTube and TikTok are their go to internet destinations for short form video clips, plus social media sites such as Instagram and X are in the mix. Now Netflix is the company being disrupted. Is this a death knell for Netflix? Not at all. It's still a premier streaming service, it's just not the growth company it used to be. Personally, I'm not a subscriber to Netflix although I've been one in the past, twice. They just didn't have enough content offerings that suited my tastes. If they had more NFL or college football games, I would sign up in a heartbeat on the advertising tier. Give me the gridiron or I'm going somewhere else. 

One chapter in Disrupters at the Gate is focused on the personal computer revolution. Most notably Apple and Microsoft. An excerpt of an interview with Bill Gates is included. When asked what kept him up at night, Gates responded, "Two guys in a garage in Silicon Valley.". We're at an inflection point where massive transformation is here because of Artificial Intelligence. Bootstrap organizations that consist of just a few people are making applications for the masses and making millions if not billions of dollars. Although no longer startups, both Anthropic and OpenAI started this way. There's going to be more to come as we get into the second derivative of the AI buildout. 

If we break down the epochs of time, it's BC, AD, PC, WiFi, and currently AI. AI has now morphed into Agentic AI and requires crypto in the form of stablecoins to fully function autonomously. These stablecoins run on blockchains so cryptocurrency is here to stay. According to Matt Hougan, Chief Investment Officer of Bitwise Asset Management, the "Mount Rushmore" of crypto consists of Bitcoin, Ethereum, Solana and Chainlink. These are the foundational blocks in digital assets that will propel institutional adoption and real-world asset tokenization for Decentralized Finance.

I own assets in both Chainlink and Solana via spot-priced ETFs. According to Standard Chartered, the multinational European bank, the bull case for Chainlink  is $200 by 2030. That's almost a twenty-fold increase. Some pundits peg Solana as a seven bagger in the same timespan. We're not even talking about the decade of the 2030s when Blockchain has the potential to be the fundamental driver of the S&P 500 companies. I'm not so sure how high Bitcoin will rise, it's like digital gold. The problem is, at least currently, as Bitcoin goes, so goes the crypto market. That's why I'm rooting for Bitcoin. I'm not sure where this is all going, but AI and crypto are the disrupters now. This is where you're going to make the money. That's what I'm betting on.   

Live Long and Prosper

Otto Von Bismarck is famous for saying: "People never lie so much as after a hunt, during a war, or before an election". Hunting season is upon us, we're in the midst of war with Iran, and the midterm elections are less than two weeks away. As Fleetwood Mac used to sing: Tell me lies, tell me sweet little lies. I don't know who to believe anymore.

To get away from all the noise I've spent the past two months immersed in finance and technology books. Books about boom and bust cycles of yesteryear are a focal point since there's great debate about the current technology revolution as to how much further we have to go. 1929 by Andrew Ross Sorkin is excellent as well as 1873 by Liaqat Ahamed. Most people are familiar with the crash of 1929 and the ensuing Great Depression. The global financial meltdown of 1873, not so much. But just like the Dot Com implosion of 1999-2000 and the Great Recession of 2007-2008, it was the big banks and Wall Street that caused the financial meltdowns by too much speculation, margin trading and greed. 

As an offshoot of my reading, I've been creating a watchlist of equities that I would like to purchase if they get down to my price range. They're primarily Artificial Intelligence stocks, but everything is AI now, at least with Corporate America. Artificial Intelligence permeates the national news. It's coming to take all of our jobs or is coming to wipe out humanity if you believe the hype. The question remains, what type of future do you believe in? The James Cameron version (he wrote and directed The Terminator), or the Gene Roddenberry interpretation (Roddenberry created Star Trek). I tend to be an optimist, so I'm going with Starfleet Command. 

It seems as if the more I read, the less I know. This is especially true with technology. It's evolving at warp speed and it's tough to keep up. As a society, we are captives of the Digerati. One thing that has confused me but was clarified recently is the concept of tokenization, a term that is frequently bandied about. The problem that I had with technology pundits is that they don't specify which tokenization that they're referring to. There's tokenization in AI, and there is tokenization in cryptocurrency. It's like saying Portland but not specifying if it's in Oregon or Maine. Two different cities and two different technology concepts with very little overlap.

Tokenization in AI deals with Large Language Models, how text strings are diced up and put back together like jigsaw puzzles to ensure the most efficient outcome of your prompt. The large chatbots such as Anthropic's Claude, or OpenAI's ChatGPT get charged by token usage. With crypto, tokenization is the digitization of analog assets such as equities, bonds, real estate contracts in order to flow through the blockchain. I'm a big believer in crypto tokenization and that it's the next phase of the plumbing that makes our financial systems operate in a timely manner. In a 24/7 marketplace, blockchain and tokenization is not only the future, but it's the present. It's going mainstream and I've bet on it with investments in Solana and Chainlink.

Two other concepts that were defined in my most recent readings are subsets of Artificial Intelligence: Agentic AI and Artificial General Intelligence. They sound about the same but they aren't. Agentic AI is here and it's growing, and it's putting people out of work. What used to take hours to accomplish manually, takes a matter of seconds. It is and will put white collar workers on the unemployment line. The blacksmiths and wainwrights in the horse and buggy era had to learn to pump gas and fix carburetors with the introduction of the automobile. This is a similar transition. 

When you do a prompt in pedestrian AI, it's reactive. It searches for something based on your query, a set of instructions if you will. With Agentic AI, it's proactive. You state a task and it will reason and plan from inputs of multiple data sources, not just a Large Language Model. This is in real time. For instance, if you want to book a flight, you will prompt the day, price range, and destination. The Agentic AI agent will scour all available data sources available and book your flight. Letting an AI Agent have your credit card number is a dangerous proposition in my opinion. Not enough guardrails in a nascent technology so buyer beware. 

Artificial General Intelligence is a technology for the future. To quote Google, "a hypothetical form of AI that matches or surpasses human capabilities across all cognitive tasks.". Ray Kurzweil has been writing for years about "The Singularity", where machines become humanlike. Sentient Computing is the technical term, where computers have subjective experiences, self-awareness and personal feelings. In The Terminator, a search and destroy cyborg, the T-800 from Cyberdyne Systems, time travels to Earth to complete an assassination. Not only is this the concept of Artificial General Intelligence, but the negative aspects of it, too. 

Elon Musk has transformed Tesla into a robotics company and this is what he envisions in the not too distant future, a company that produces human-like robots. Musk has already manufactured a flying car in the Tesla Roadster, right out of the 1960's era cartoon The Jetsons, or a more modern example is 1997's movie The Fifth Element. He's a brilliant engineer, but overshoots his projections which makes both his companies Tesla and SpaceX extremely expensive to invest in on a valuation basis. They're cult stocks. Musk is a cult figure. They go well together. There's speculation that he's going to merge the two companies which would be a runway to creating Skynet if you're familiar with The Terminator franchise. He'd have the androids and the neural networks. It's a dangerous combination if handled incorrectly. 

You can be a Luddite and do all the protesting you want to do, but you're not going to change anything. You can't fight the future, the future always wins. To use a cliché, you can't put the genie back in the bottle. We're in a race with China for AI dominance and if I'm going to get killed by a rogue cyborg, I'd rather it be American made than manufactured in China.