Key insights
- The author draws parallels between the 1970s Nifty Fifty and today's Magnificent Seven, highlighting the risk of high valuations and changing discount rates. While Mag 7 revenue is growing, true free cash flow is declining. The author expresses concern about the dominance of passive investing and its potential vulnerability in a bear market, similar to the behavioral concentration in the Nifty Fifty era. The author has shifted to more value-oriented investments.
The 1970's Nifty Fifty weren't a fraud: they included Coca-Cola, McDonald's and Phillip Morris, yet they still fell 70–90% from their peaks. Their earnings didn't collapsed, but the discount rate environment changed and the multiples that assumed perfection got repriced toward reality.
I've been running true FCF screens on the Mag 7 (OCF minus CapEx minus SBC — same methodology as my Bridges to Nowhere piece). Nvidia printed $56B in true FCF in 2025. But for the group as a whole, true FCF is declining even as revenue grows.
One parallel scares the sh*t out of me: passive investing. In 1972 the Nifty Fifty concentration was behavioral, led by institutions believing in the easy money from concentrating in just the best companies. Today it's more mechanical: in 2010, less than 20% of US equity assets were passive whereas now it's nearly 60%. Maybe it's my age, but I've felt like passive ETFs have dominated investing flows forever. But they've yet to face a longer-term bear test like 2008.
Here's the full parallel if you're interested: https://cavemanscreener.substack.com/p/that-70s-market-oil-shocks-arthur
I've moved to more boring investments myself: BRK.B, CB, AXP, EPD, FDS, UNH.