- On 19 August Apple became the first US company to exceed two trillion dollars in market value.
- While physical retail suffered, big tech grew: a two-speed economy took shape.
- It pays to know what is inside a portfolio, not just what it is called: concentrated indices expose investors heavily to a few companies.
On 19 August 2020 Apple became the first US company to exceed two trillion dollars in market value. The figure, enormous in absolute terms, arrived in the middle of an economic crisis, when a good part of the traditional sectors was going through difficulties. That combination showed how far the pandemic was favouring some activities and punishing others. It is a figure that illustrates deep changes in consumption and work habits.
For savers and investors, the news was an invitation to reflect on how value is distributed in the markets and on how much a portfolio depends on a few companies. It is not a matter of opining on whether a company’s valuation is high or low, but of understanding what it implies that the market concentrates in a few names and what it means for anyone who invests, directly or indirectly, in them. The relevant question is not which company rises most, but how much risk is concentrated in the whole.
What market value is
Market capitalisation is the value the market attributes to a company: the price of each share multiplied by the number of shares. That Apple exceeded two trillion dollars, in a crisis that had sunk so many sectors, showed how far the market favoured the big technology companies. Its value reflects investors’ expectations about the company’s future, not just its past results.
It is worth remembering that market capitalisation is not the same as the money a company has or the value of its assets: it is the price the market assigns at each moment, and it can change quickly according to expectations. That is why it is a useful figure for comparing sizes, but not for drawing conclusions about the soundness or future profitability of a company without analysing more data. Two companies with the same market value can have very different risk profiles.
Two economies in one
While physical retail suffered, big tech grew. The lockdown accelerated remote work, online shopping and the use of digital services, precisely what these companies offer. A two-speed economy took shape: the in-person one, hard hit, and the digital one, strengthened.
This divergence has consequences for companies and for families. Businesses that depend on direct contact must consider how to add digital channels without losing their essence, and people who work in in-person sectors may assess which complementary skills to strengthen. At the level of wealth, the divergence is a reminder that sectors do not move at the same pace and that today’s advantages are not always maintained. An income structure too dependent on a single type of activity is more fragile when the cycle changes.
Concentration and portfolios
The concentration of stock indices in a few companies is worth bearing in mind when reviewing any portfolio. When a few companies weigh heavily in an index, whoever invests in it is, perhaps unknowingly, highly exposed to them. Understanding what each fund or index is made of helps to see how much risk is really being taken.
A sensible review starts by looking at the real composition: how many companies there are, how much the largest weigh, which sectors and countries predominate and how much is repeated among different funds. Sometimes two products that look different end up sharing the same main positions. An independent adviser can help read that information and decide whether the level of concentration is consistent with each person’s goals and tolerance for risk. Diversifying across funds is not the same as diversifying in practice if they all contain the same thing.
It pays to know what is inside a portfolio, not just what it is called.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
