My favorite kind of chart makes you think, “Huh.” Here’s one:

Turns out there were 74 stocks in the S&P 500 that, strictly on price, outperformed Nvidia in 2025. You’d never know that from the financial media’s coverage. 

The top performer in the S&P 500, as reported by our special guest this week: SanDisk (SNDK)!

I learned this from Liz Ann Sonders, Chief Investment Strategist at Charles Schwab. She’s one of the most respected market strategists in the country, deeply rooted in the data, and oddly, one of the first people I ever interviewed in finance. I say oddly because Liz Ann Sonders operates at the pinnacle of investing. Not exactly the place you’d expect to start, but I think John Mauldin wanted to put me to the test.

I guess I did okay all those years ago on the stage of the Strategic Investment Conference, because I’ve sat with Liz Ann many times since. She is always gracious, informative, thoughtful, and truly one of the kindest people in finance. And yet… her immense base of knowledge is intimidating. Liz Ann’s excellent research touches over 38 million investment accounts, with over $11 trillion (note the “T”) of assets.

Broken Concentration

The top 10 stocks in the S&P 500 now account for roughly 40% of the index’s total market capitalization. From 1880 to 2010, the top 10 averaged about 24% of the index.

Let’s put this in practical terms. If you invest $100,000 in an S&P 500 index fund today, roughly $40,000 goes into just 10 companies. The remaining $60,000 gets spread across the other 490.

The situation is even more concentrated than it appears. State Street found that only 44 stocks are driving the index’s returns—the lowest number in about 35 years. You think you’re buying 500 companies, with a goal of diversification. But you’re really buying 44, with a heavy tilt toward a handful of mega-cap tech names.

Source: State Street

The valuation gap raises another issue. According to Invesco, the cap-weighted S&P 500’s PE ratio stands at 27.8—a 29% premium over the equal-weight version of the same index.

No One Is Stuck Here

Liz Ann summed up the situation bluntly: only two of the Mag 7 stocks outperformed the S&P 500 last year. Five of them underperformed. Yet investors keep piling into these names as if diversification doesn’t matter.

Diversification does matter, and you needn’t go without it. Many of you are individual investors, like me, and not fund managers. You don’t have to own mega-cap stocks in proportion to their index weight.

You could hold an equal-weighted S&P 500 fund. They have underperformed their cap-weighted counterparts over the past three years, but I suspect that will not be the case in 2026.

Have a Plan

One of Liz Ann’s key messages for investors is to have a good plan for your portfolio. A good plan isn’t driven by FOMO. It’s not driven by getting too concentrated in what’s working, because what worked last year might not work moving forward. I’ll let you read the transcript or watch our conversation to hear, firsthand, what makes a good investment strategy. 

You will also hear:

• Why Liz Ann thinks the AI era is entering its “cultivation” phase
• How utilities went from AI darling to a laggard sector almost overnight
• Why geopolitical crises rarely move markets long term (with critical exceptions)

Video Length: 00:35:35

A transcript of our conversation is available here.

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