As we were preparing for our investment review, we took time to think about previous times in history where a “world changing” event has taken place. Erik shared some of his thoughts in last month’s newsletter “Dot Com and 2007 Again? Stick to the plan.” People look at this AI boom as something that will never end. It will, in the sense it will become normalized. Matter of fact, The Daily Spark dated November 28th, 2025, a newsletter from Dr. Torsten Slok, Chief Economist for Apollo Global Management, reported, “AI adoption rates are starting to flatten out across all firm sizes.”
Here are some other historic events that compare to how we currently think of AI…
In the early 1900’s, radio was a technology that was going to reinvent the world. In 1925, the New York Times said, “It is considered doubtful if there ever has been an industry in the history of this country which has had such phenomenal growth.” Radio stocks eventually crashed.
In 1999, Ford digitized its supply chain, estimating a cut in annual purchasing costs by 10% ($8 billion per year). This was a revolutionary concept in new technology. The already overvalued stock market loved the news, pushing the price of Ford to record highs. This was a great business activity for the company, but did that mean the company would continue to have permanently higher profits and stock prices? No. Ford is one company. Soon, all of its competitors, such as Daimler and Toyota, also digitized their supply chains. Costs came down across the board, better cars were built, and competition drove the price of Ford down.
When I graduated from college, I started working for a telecom company. We were building a revolutionary fiber cable network across the Western US which helped drive the ability for devices like the iPhone. At the time, these were “can’t miss” stocks that were going to change the world for good: Nortel, Lucent, WorldCom. I had a lot of stock grants in the company I worked for, choosing them over an increase in salary. ‘This will never go away and I’ll be rich!’ I thought as a naïve 24-year-old. In less than two years, by the time my stock grants were fully exercisable, they were worthless. Nortel went bankrupt, Lucent merged with Alcatel, then was ultimately acquired by Nokia. WorldCom, one of the largest telecom companies in the world, infamously committed one of the largest accounting fraud cases in history and was bankrupt by 2002.
Today, 7 companies have a larger concentration in the S&P 500 (the 500 largest companies in the world) than at any time in history. These stocks currently hold close to 40% of total concentration in the S&P 500. Investments such as ETF’s and cap weighted funds which comprise many 401k investment selections have very high concentrations in these 7 companies. If you are invested in those, you have probably seen quite a bit of growth. But as money is invested into these funds, it’s not being spread equally and diversified. Much of the new money ends up feeding the “Magnificent 7” stocks. Very little is being invested in other large companies such as Johnson & Johnson, Visa, Proctor & Gamble and Home Depot, among others. This money is also being invested as these Mag 7 stocks become increasingly overvalued, purchased at a premium instead of on sale.
Throughout similar events in history, this kind of growth has never been sustainable and is not sustainable this time either. This year, as of October 31st, the S&P returned 16.30% for the year (Chow). If you remove the Mag 7 stocks and look at the other 493 largest companies in the index, the return is roughly 7% (Chow). More than half of the return of the S&P 500 is due to these 7 stocks. What happens when these stocks inevitably correct?
Here at TenBridge, when we build our portfolios, we prioritize high quality investments, seeking steady growth and downside protection through thoughtful diversification, aimed at achieving our clients’ financial planning target rate of return. After careful review, we feel our portfolios are built to fulfill this objective. Though we are going to make a tweak while continuing to stick to our philosophy.
We will be removing the Eaton Vance Atlanta Capital SMID fund from the portfolio and merging this into the existing Davenport Small Cap Focus fund. These two funds have become increasingly similar and have been moving in tandem with each other. Both funds have underperformed their benchmark this year as they focus on quality companies and returns in the small cap market have been dominated by momentum stocks. In periods where quality companies are more desirable, Davenport has shown to be one of the top funds in the small market space.
If you have any major money events coming up in the next 3-5 years we aren’t aware of yet, such as retirement, home purchases, college planning, or something else, please contact us so we can update your financial plan and assure you are prepared.
Citations
Chow, A. (2025, October 30). Without Magnificent 7, S&P 500 YTD Returns 7%. Finbite Insights. https://finbiteinsights.substack.com/p/without-magnificent-7-s-and-p-500
Operations Manager and Chief Compliance Officer
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