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Gianni Berardi's avatar

These are concepts that should be taught in school. From my point of view, it all follows a natural logic. Individual stocks are comparable to individuals trying to adapt in an extremely competitive environment where 'one in a thousand makes it.' Of those that succeed, they all must go through the inevitable cycle of life: birth, growth, and death. So why does the S&P 500 continue its undisturbed raising, despite the ups and downs? Because it represents the Species. The species survives because it is composed of those same individuals who survive and perpetuate their own DNA, favoring the most useful mutations in terms of adaptation. Indices are designed to select winning stocks based on their characteristics. So, if a publicly traded company is inevitably destined to fail sooner or later, there will be a new one ready to take its place, leveraging a competitive advantage in emerging sectors that offer more opportunities. Here's a visual depiction:

-A chart showing the evolution of the weight of different sectors in reference indices, from the early 1900s until COVID.

-A chart with every company in and out of the Dow since 1928 until COVID.

https://www.visualcapitalist.com/200-years-u-s-stock-market-sectors/

https://www.visualcapitalist.com/every-company-in-and-out-of-the-dow-jones-industrial-average-since-1928/

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Justin Yang's avatar

If you’re rich enough, you don’t even have to sell your 40% stock exposure. Private banks will happily lend against that or write a swap so you can diversify your portfolio without triggering capital gains.

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