Investing in the META stock since 2022 has yielded a return comparable to an equal allocation to the seven magnificent stocks.
This chart confirms that the average performance of the magnificent seven stocks has nearly matched the performance of the META stock.
Year-to-date, the average return of the magnificent 7 stocks (~MAG7) is 57.6%, while the return of META is 60.7%.
Since 2022, the average return of the magnificent 7 stocks (~MAG7) is 70.1%, while the return of META is 69.1%. Below is a bar chart with the returns since 2022.
Investing in the META stock since 2022 has yielded a return comparable to an equal allocation to the seven magnificent stocks. Also note that in the 2022-2023 period, the performance of the META stock was flat. The 69.1% gain is due to year-to-date performance. In fact, the average performance of the magnificent seven stocks was nearly flat in the same period, with a return of only 8%.
The maximum drawdown of the average of the magnificent 7 stocks has been about 50% with a Sharpe ratio of 0.62, while that of META has been 73.74% in October 2022 during the bear market, with a Sharpe ratio of 0.41. In fact, it took a gain of 194% in 2023 for META to recover a 64% loss in 2022.
Conclusion
Without the outlier performance of NVDA, META would have outperformed the average return of seven magnificent stocks. As it turns out, META has matched the average performance of the magnificent 7 stocks since 2022, but the risk-adjusted return has been lower due to higher volatility and drawdown. This could be a persistent dynamic, with META either continuing to track the average magnificent 7 performance or even exceeding it in the future. From an allocation perspective, the counterintuitive thinking is that a concentrated bet on META could be less risky than exposure to multiple company-specific risks.
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