Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

Rule of the Powerful Few

By William Beynon & John Walker | August 16, 2023

rule of the powerful-3 (1)In governance, the rule of the powerful one is called a Monarchy, and the rule of the powerful few is an Oligarchy.  Over the course of this year, we have seen what may appear as the masquerade of the broad markets rising.  What may actually be happening could be more akin to the Oligarchy of a few powerful stocks rising at speed.  We have spoken to many families who feel concerned that they are missing out because their portfolios aren’t keeping up with the upper end of the S&P 500 as the year has progressed.  The media reports daily about how the big three benchmarks are doing.  The Dow, S&P 500, and Nasdaq have long been the ruler by which many judge their results.  What can be frustrating is that these benchmarks may not always give an even read on their constituent stocks.  In this discussion, we plan to look at the fabric of the S&P 500 now and share some opinions on how its current build is affecting markets and client portfolios. Our objective with this article is to offer valuable insights on how to effectively analyze headlines, enabling a deeper understanding of the underlying dynamics of the index. Moreover, we aim to assist you in forming informed opinions concerning your family's market exposure and evaluating your comfort level during this specific market season. 

Understanding the Role of Indices

First, what is an index, and why do we need them?  In this context, an index refers to a collection of securities that serves as a benchmark for assessing the risk or performance of that particular group. The industry employs this group of securities to provide context and significance to other securities. Let’s say your portfolio is up 3%.   This is where the indices come into play. If you can find a group of securities that resembles your group in some way, you can hold the index up as a standard of measure for your portfolio. Then you can draw conclusions about the differences that resulted in your portfolio results versus the benchmark. Whatever your current returns are, you need a benchmark to give context to them. If the markets are down 5% while your portfolio is up 3%, as mentioned earlier, that likely feels great. However, if the markets are up 20% while you are up only 3%, that may not elicit as positive a feeling. In either case, the benchmark may shed light on how to rebalance the portfolio to create a more desirable outcome. A critical note on this topic is that most of the families we work with have blended portfolios that contain multiple asset classes like Stocks, bonds, or real estate. Using only one stock or bond index alone may not give you a fair comparison. The specific positions in your portfolio may cause misalignment as well. The fairness of that comparison is critical to fully assessing how you are doing compared to your goal line and the markets overall.

Because we live here in the U.S., it seems natural to hold up indices like the Dow Jones Industrial 30, Nasdaq, or S&P 500 to measure against your results. The thing about averages, in my opinion, is that most want to see them as one homogeneous, uniform group with little variance across the members of that average. Life is full of these kinds of averages. Average height, weight, income, and life expectancy are just a few such averages we see all the time. If you dig into the arithmetic of it, you will find that standard deviation would tell you that in any average, 68% of the outcomes are within just one unit of measure away from the average, and 95% of outcomes are within two units away. So, this feeling of average uniformity has a lot of support. What happens when those feelings stop being accurate? What happens when the averages stop being uniform and start to get top or bottom-heavy? How should we act if these things occur?


Standard and Poor’s rating company was originally launched under the name Standard Statistics Company. It began to track market data uniformly in 1923. In 1957 the modern “S&P 500 Index” was created. Technically the benchmark now has 505 companies on it1. This is a capitalization-weighted index. A good way to describe indices of this kind is to look at the two chambers of government we have here in the United States. The House of Representatives is population-weighted, while the Senate is equal-weighted. Even though Alaska has a huge land mass, it has low population density, thus requiring only one seat in the House of Representatives. Rhode Island is a fraction of Alaska’s size land-wise but has more population density, so it has two seats in the House. Despite being tiny by comparison Rhode Island carries more value in this House than its much larger counterpart Alaska. The constituents of the S&P 500 are the same way. The larger a company is, the more weight it carries on the total return of the index. This gives rise to the possibility of the non-uniformity mentioned earlier. The size and weight of companies change constantly. As this article is being written, the top 10 stocks on the S&P 500 weigh just over 30%. The top 5 weigh just about 22%, and the top two stocks, Apple (AAPL) and Microsoft (MSFT), weigh 14.2% of the index. In my opinion, this is a pretty radical overweight. As an example, a million-dollar portfolio that only invested in the S&P 500 would have roughly $142,000 in Apple and Microsoft alone. So, a 30% loss in value on just those two could be a $42,600 hit to the portfolio. That loss is just less than the median single income in America in 2023, coming in at $44,2253. That is a real loss and a hard hit resulting from a large weighting in just two positions.

The Current Top 10 S&P 500 Stocks by Weight (As of 07/15/2023)

# Company



1 Apple Inc AAPL 7.476205
2 Microsoft Corp MSFT 6.761573
3 Amazon.com Inc AMZN 3.181502
4 Nvidia Corp NVDA 3.017602
5 Tesla Inc TSLA 1.986895
6 Alphabet Inc Cl C GOOGL 1.963553
7 Meta Platforms Inc CI A META 1.839933
8 Alphabet Inc Cl C GOOG 1.692958
9 Berkshire Hathway Inc Cl B BRK.B 1.625842
10 JPMorgan Chase & Co JPM 1.154529

Source: S&P 500 companies by weight. S&P 500 Companies - S&P 500 Index Components by Market Cap. (n.d.). https://www.slickcharts.com/sp500



Earlier, I mentioned that the S&P 500 is capitalization-weighted, and we discussed that the House of Representatives is assembled in a similar fashion. I also referenced the Senate as being equal-weighted. There are securities that track an equally weighted S&P 500 index.  I’d like to compare the capitalization-weighted S&P 500 with an equal-weighted S&P 500. 

Capitalization Weighted S&P 500 (RSP) Compared to Equally- Weighted S&P 500 (SPY) 4

Capitalization Weighted S&P 500 (RSP) Compared to Equally- Weighted S&P 500-1

As you can see, the weighting of the stocks present in (SPY) yields a very different outcome in the last six months than the equal-weighted (RSP). This chart really underscores the effect of Oligarchy that I mentioned at the very beginning of this article. The top stocks weigh so much and are doing so well that it makes it hard to realize that the other constituents of the benchmark aren’t doing nearly so well. Over this most recent six-month period, you can see that (SPY) produced a 12.9% return (need time period 1/15/23– 7/15/23). As of the writing of this article, 321 companies are below that average return. That is 63% of the benchmark that is underperforming the average2.

What is the risk in being so heavily allocated to these so-called “top stocks”? In poetry, art, music, and science, there are idioms that relate to balance and the natural reversion from imbalance to balance. The stock market has shown us historically that it excels at leveling things that become too exuberantly priced. Given the significant dominance of the technology sector in the markets, it is worthwhile to examine the crash in the early 2000s as an illustrative example of this inherent risk. If you use (QQQ) as a proxy for the tech sector and (SPY) as a surrogate for the large-cap broader market, you can see that the tech stocks roared far higher than the broader market, fell much further, and took longer to recover the losses than the broader markets represented by (SPY)⁴. The (QQQ) fell below the (SPY) in early 2001 and stayed there for the better of the next nine years. Few of the investors we have worked with have the patience to ride out 9 years of underperformance. It is for these very reasons that we make an effort to invest in the rubric that prevents us from chasing after rapidly rising stocks and allowing our clients to get hurt in the process. We believe in establishing patient trading structures and allowing the value of our decisions to show over time.

Tech Sector (QQQ) Compared to Large-Cap Broader Market (SPY)

Tech Sector (QQQ) Compared to Large-Cap Broader Market (SPY)-1

From the beginning of our discussion, our focus has been on examining the current composition of the S&P 500. It has become apparent that this benchmark is not as uniform as it initially appears. By analyzing the current stock weights, we have identified the potential risk of significant losses associated with having substantial positions in your family's holdings. Looking back at historical events, we observed how a portfolio heavily weighted towards certain assets could experience substantial gains but also suffer drastic declines. Recognizing that recovering from a poorly positioned portfolio can take years is crucial. Our intention is not to suggest that taking calculated investment risks is inherently unprofitable. Rather, we emphasize the importance of investors being fully aware of the actual composition of their portfolios and comprehending the inherent risks involved. Losing in a well-calculated risk is fundamentally different from being blindsided by unforeseen factors that were not even considered.


At CWA, we place great importance on assessing portfolio risk. We find ourselves in a precarious moment in history characterized by high levels of uncertainty. Depending on the indicators you prioritize, your perspectives may differ significantly from those of others. It's easy to become swept up in the allure of exhilarating returns. However, it is crucial to remain steadfast in your financial plan and understand the returns you genuinely need to achieve your goals. This mindset is vital for maintaining a steady approach amidst the uncertainties to come. If you believe it is time to review your holdings, goals, and risks, we would be delighted to assist you. Our advisors can help ensure that your portfolio aligns as closely as possible with your desired level of risk and potential return.


1 Key dates and milestones in the S&P 500's history (n.d.). Retrieved July 15, 2023, from https://www.reuters.com/article/us-usa-stocks-sp-timeline/key-dates-and-milestones-in-the-sp-500s-history-idUSBRE9450WL20130506
2 Sp500 top stocks by weight (n.d.). Retrieved July 15, 2023, from https://www.slickcharts.com/sp500
3 State rankings average family income. (n.d.). Retrieved July 15, 2023, from https://worldpopulationreview.com/state-rankings/average-family-income
4 RSP/SPY Chart. (n.d.). Retrieved July 15, 2023, from https://www.slickcharts.com/sp500
5 QQQ/SPY Chart. (n.d.). Retrieved July 15, 2023, from https://digital.fidelity.com/prgw/digital/research/quote/dashboard/chart?symbol=QQQ


CWA Asset Management Group, LLC (“CWA”) is an SEC-registered investment adviser, doing business as Capital Wealth Advisors (FL, LA & NC) and as blueharbor wealth advisors (NC). Registration does not imply any level of skill or training. This material is for informational purposes only, as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. Any opinions expressed herein represent current opinions as of the date of publication only and may change based on market or other conditions.  This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here.   Certain information herein has been provided by and/or is based on third-party sources and, although believed to be reliable, has not been independently verified, and CWA is not responsible for third-party errors.  No representation is made with respect to the accuracy, completeness or timeliness of information or opinions herein and CWA assumes no obligation to update or revise such information or opinions.

Information presented is for educational purposes only and should not be considered investment advice or an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  All investments involve risk, including risk of loss and are not guaranteed.  Past performance is no guarantee of future results.  There can be no guarantee that CWA will achieve any specific investment objective or level of performance.  CWA does not offer legal or tax advice.  Please consult your investment or tax professional for additional information concerning your specific situation.  Specific companies, industries or securities described are meant to be illustrative of investment style only. Additional information regarding CWA including fees, expenses, and risks of investment, is contained in CWA’s investment advisory agreement, its Form ADV, Form CRS and related disclosure documents and should be reviewed carefully. CWA’s ADV 2A and Form CRS can be accessed via https://adviserinfo.sec.gov/.

For additional disclosure information, please go to https://www.capitalwealthadvisors.com/disclosures/.
William Beynon
President & CEO

Co-Author of Wisdom in Wealth.

John Walker, AEP®, CFP®, CAP®
Managing Director | Private Wealth Management

Co-Author of Wisdom in Wealth. 

Newsletter Signup