Summer Joy and Happiness

Dear Reader,

The summer and vacation months have begun but it doesn't look like this will be something like "The Long Hot Summer of 2024". Anyway, the mid year is always a good period to make some reflections about the first half and try to figure out what second half may bring.

We see charts being published that the stock market is driven by only "a narrow number of high performers". Indeed only 22% of S&P500 stocks outperformed the S&P500 index YTD.

But what does this really tell us? A negative logaritmic combined with a positive exponential, over 500 data points, where does this lead us to? ??

We asked AI and this answer came out:

The graph depicting the year-to-date relative performance of S&P 500 stocks shows a distribution where a few stocks have significantly outperformed, while many have underperformed or remained close to the average. This pattern can be likened to several natural phenomena that exhibit similar distributions:

• Earthquake Magnitudes: The Gutenberg-Richter law describes the frequency of earthquakes, where small earthquakes are common, and large earthquakes are rare. This results in a long-tailed distribution similar to the graph.
• Wealth Distribution: In economics, the Pareto principle (or the 80/20 rule) states that a small percentage of the population controls a large portion of the wealth. This creates a distribution where a few individuals have very high wealth, while the majority have much less.
• City Populations: Zipf's law in urban studies indicates that a few cities have very large populations, while most cities are much smaller. This results in a distribution with a long tail of smaller cities.
• Species Abundance: In ecology, the species abundance distribution shows that a few species are very common, while most species are rare. This creates a similar long-tailed distribution.
• Word Frequencies in Language: Zipf's law also applies to linguistics, where a few words are used very frequently, and most words are used rarely, resulting in a similar distribution.

These natural events and phenomena create patterns that resemble the distribution seen in the S&P 500 performance graph, characterized by a small number of high values and a large number of low values.

So the answer seems to be: it's only natural. ??

What tells us perhaps more is the level of insider trading and which better stock to pick than the #1 Nvidia. A really good (but somewhat mute site) is DATAROMA which I am monitoring frequently. Here is a screenshot of what insider trading has been happening for the last year on Nvidia:

We note that the insider buying is ZERO. The insider selling however, a.o. from CEO Jensen Huang but also from the less public figure CFO Colette Kress amounts to a whopping $1.16T.

Information asymmetry is a situation where one party has more or better information than the other and creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient, causing market failure in the worst case. But who would have better if not even the best information of all than the founder of Nvidia on Nvidia? ??

I leave it to your own imagination to make further conclusions and wish you all a happy and relaxing summer holidays.

Cheers

Luc