Everything Changed in Early 2023. Wonder how many Investors noticed. – Investment Moats

And I sort of layered a few total return (price gains + dividends) charts together and sort of notice the same thing I see again and again.

And I am not sure if readers here noticed what I see.

This chart starts from end 2014, which is when IWSZ incepted. Its probably a 10 year history not too long but also not too short.

I want to put out the returns of a few index together:

1. IWSZ: 195%
2. S&P 500 Equal Weighted (RSP): 259%
3. S&P 600 (IJR): 244%
4. S&P 400 (MDY): 236%
5. L&G Russell 2000 US Small Cap Quality UCITS ETF USD Accumulate (RTWO): 228%
6. S&P 500 Cap-weighted (SPY): 377%

Clearly the S&P 500 cap weighted index did pretty well, but if you look at the chart you would see a clear pattern:

Everyone was jostling for positions from 2015 to 2023. Then in Feb 2023, the SPY took off.

Everyone else has differing returns but largely not too far off. Small caps, mid caps, large caps all the same. It was whether you have mega companies.

Now I think there may be 4 or 5 questions you can reflect as you look at this chart.

The small, mid and large, even with some international can own different groups of companies.

The first thing is, their returns are not too far off! A follow up personal ponder is: What is the factor that caused different portfolios of stocks to do pretty well?

We know what happen in Feb 2023, the AI trade took off and greatly benefit the mega companies in the US.

Now think about this:

In Oct 2014 you could have made 1 single investment in either IWSZ, RSP, IJR, MDY, RTWO or SPY. How would you explain your “underperformance” if you chose IWSZ, RSP, IJR, MDY or RTWO?

That you didn’t foresee a group of companies would do extremely well?

But perhaps you thought all 500 large caps are pretty good so equal weighting them is not a bad idea! the data from 2003 to 2014 looked so compellling!

Now the next question:

Now is Aug 2026. If you were to make the decision, again with one out of these six, which would you put your money into?

If you stick with a cap-weighted S&P 500, why did you make this decision?

Your 10 year older self is going to come back and find your reason today.

There is also something very hidden:

Some folks consider Microsoft, Amazon, Google, Meta Platforms to be superior companies. Microsoft probably bottom near 2014 when Nadella took over the company and since then, Microsoft, Amazon have a long run way of growth from meeting cloud computing resources demand. Google later joined in.

But if you look at the chart from 2014 to 2023, despite this “superior” business model, they were essentially… no different from smaller mid caps and small cap stocks!

In a way, are mega companies really superior that you have to invest in a cap-weighted large cap index? I don’t always think so.

If we lengthen this over 15 years, 20 years, you might realize that this AI may just be a short blip.

But there is a last question to ponder about:

Now so these mega companies have gain so much, relative to the others. Usually what comes next? long term strength strengthens even more? or Mean reversion?

It is a good question because… you are seeing the same pattern on the STI:

Investing is sometimes about luck but also being able to stay in the game. And very often, it is about seeing something and learning the right lessons.

It is also very psychological. Sometimes, we lament we made poor investments but it’s not the investment’s fault.

Sometimes it is we set our expectations so lofty due to how we interpret it, position them based on our interpretations. We set ourselves up for disappointments.

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