The SoftBank “Secret”

By now, most investors know that in late February of this year through mid-March the stock markets kind of crashed. It was a matter of 31 days from February 20th to March 23rd….not that I had to look that up or anything.

It was swift and ugly. And then, the stock markets both suddenly and slowly recovered, hitting it big in April and then gradually reaching new all-time records by September. Hmmmm… how does that work? Is it “free markets”? More buyers than sellers? Individuals throwing money at stocks?

SoftBank reported $4 billion of options trades representing $50 billion of underlying value in the same handful of technology stocks in the US.

Note that beyond approximately the 1% wealthiest households in the US, individual investor ownership of stocks has been shrinking. Yes, the data says that amidst the March “crash” individual investors did buy stocks through mutual funds and 401k and retirement accounts. But the muscle behind the moves, both down and up, was not purely from individuals trading stocks.

Further research of public filings of company stock ownership* reveals that SoftBank, the Japanese holding company with trillions (with a “T”) of dollars (not Yen but Dollars) in investments, made some BIG trades this year between March and September. When I say BIG, I mean purchases in the Spring (March-June) of $4 billion of a handful of US technology stocks. And it was revealed that more recently SoftBank reported $4 billion of options trades representing $50 billion of underlying value in the same handful of technology stocks in the US! At least four of the stocks SoftBank bought were:

  • Amazon
  • Microsoft
  • Netflix
  • Tesla

This short note is to remind investors that only FIVE technology stocks currently make up ONE QUARTER of the value (and rise) of the S&P 500 US index of stocks:

  • Apple
  • Amazon
  • Facebook
  • Microsoft
  • Google

Is it merely a coincidence that the “US market” has rebounded so much with such thin leadership? What about the other 495 stocks in the S&P 500? What about all of the small US companies not in the S&P 500 (that have been up nicely in a delayed fashion) more recently this year?

This observation is a polite note of caution that thin leadership only lasts so long. A globally diversified portfolio may sound boring but may also last longer and reduce the roller coaster ride of the technology sector.

*wsj.com; Sept. 4, 2020.

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