From the dot-com boom to today’s AI frenzy, bubbles follow a familiar script. This episode explores how to recognize them, what sustains them, and how to position your portfolio without getting swept up in the hype.
Topics covered include:
- How U.S. stock markets are the most concentrated and most expensive of all time
- What constitutes a bubble and what sustains it
- How to invest during a bubble
- Changes David recently made in his portfolio in response to the AI bubble
Show Notes
I’m Changing How I Manage My Money Because of AI by Hank Green—YouTube
% S&P 500 share of top 10 companies by market cap %—Apollo Academy
Charted: S&P 500 Market Concentration Over 145 Years by Kayla Zhu—Visual Capitalist
AI’s Moment and Insights from Themes Past by Anil Rao—MSCI
How to invest in a stock market bubble by Stuart Kirk—The Financial Times
Bubble, Bubble, Toil and Trouble by Rob Arnott, Bradford Cornell, and Shane Shepherd—Research Affiliates
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Related Episodes
535: Six Principles for Thriving Under Uncertainty and How Big Tech Is Doing the Opposite
503: U.S. Stocks Have Never Been This Overhyped or Expensive
500: The S&P 500 Index and the Decade Ahead
365: Why Some Asset Bubbles Don’t Burst
Transcript
Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 536. It’s titled, “How to Invest During a Bubble.”
Hank Green Video
12 years ago, in August 2013, my son Bret and I spent a long weekend in Anaheim, California, so he could attend VidCon, the YouTube conference founded by longtime YouTubers John and Hank Green, also known as the Vlogbrothers. Each day of the conference, I dropped Bret off at the Anaheim Convention Center, while I spent the day hanging out in the LA area.
John and Hank Green continue to post regularly to their YouTube channel, which is close to 4 million subscribers. Separately, Hank has his own channel, with 2.5 million subscribers. It’s primarily a science-based channel, but he covers other topics. 10 days ag,o he released a video that has over a million views. It was titled “I am Changing How I Manage My Money Because of AI”.
Now, Hank is not a personal finance YouTuber, and he was hesitant to post the video. One commenter wrote, “Science YouTuber makes a finance video is a recession indicator.” Bret had pointed out the video to me, I watched it, and what Hank said echoed a lot of what we have discussed regarding AI and investing over the past several years.
Hank had pointed out that his primary investment, if not his only investment, has been in an S&P 500 index fund. But now that investment was getting more and more concentrated, with the top 10 holdings making up 38% of the index. That is an all-time high.
Back in the internet bubble of 1999 and 2000, the top 10 only made up 27% of the S&P 500. If we go back over the decades, the top 10 have never really exceeded 30% of the S&P 500, except for this year. And then if we look at the top five, they’re all technology stocks, and they make up 28.5% of the index. That’s Nvidia, Microsoft, Apple, Amazon, and Meta. If we look globally, the top 10 global stocks—this would be the MSCI World Index, which includes both US and non-US stocks—the top 10 make up 20% of that index. That is the highest since 1977.
Hank Green’s thesis is he is unconvinced artificial general intelligence is nearby. And even if it is, it will be less economically beneficial to those that control their models, but more the technology spillover would benefit all companies, including small cap stocks. His view is that the best AI model might not be that much better than the second best, and that AI will be more of a tool.
Well, that’s his view, but what I found interesting in this video with over a million views is here’s an investor, knowledgeable in science, very large following, and he’s letting his millions of subscribers know that he is moving stocks away from the S&P 500 index. He is going to invest 25% outside of the S&P. Now, that would include mid-cap stocks within the US, and value stocks, and even something he has never done before, invest in an international index fund.
The global stock market is 65% US stocks. So even by Hank Green moving 25% of his investment out of the S&P 500, he’s still overweight the US stocks, because even within that 25% that he is now allocating, some of that will remain in US stocks.
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