The Juggernaut Index

Do the largest value creators outperform?

November 2024. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • Selecting the top 10 stocks that created the most shareholder value is not a sound investment strategy
  • Neither is selecting the top 10 stocks with the largest market capitalizations
  • As expected, most of the stocks were technology companies

INTRODUCTION

The Nifty Fifty was a group of popular high-growth large-cap U.S. stocks pitched as “buy and hold forever stocks” in the 1960s. Although many of these are still trading today, some, like General Electric, have fallen from Olympus, and others, like Eastman Kodak, have entered bankruptcy.

Three years ago, we had the FANG stocks, which comprised Facebook, Amazon, Netflix, and Google. Today this group has evolved into the Magnificent 7, although that is changing given Broadcom´s strong performance given the boom in stocks providing exposure to artificial intelligence (read Thematic versus Momentum Investing).

Given the frequent change in such groups, it is questionable if it is worth chasing such juggernaut stocks.

In this research article, we will create and analyze a juggernaut index.

PERFORMANCE OF THE JUGGERNAUT INDEX

We create an index (the “Juggernaut Index”) of the top 10 stocks in the U.S. that had the largest absolute change in market capitalization over the last 12 months. The portfolio is equal-weighted, rebalanced monthly, and assumes 10 basis points of transaction costs. Currently, the portfolio is comprised of NVIDIA, Apple, Microsoft, Meta Platforms, Broadcom, Amazon.com, Eli Lilly, Alphabet, Berkshire Hathaway, and JPMorgan Chase.

Despite the constant hype about these few stocks, the Juggernaut Index did not outperform the U.S. stock market in the period between 2003 and 2024. The median market capitalization and price-to-book multiple were $212 billion and 4.6x over the last 20 years, compared to $4 billion and 2.5x for the entire stock market.