You’re right, of course, that holding market weight is certainly the most sensible starting point, if not the end point. If the market decides that the prices for these stocks should shoot up, I should consider following. But Amazon has a P/E of 132, and Netflix is 93, which are ridiculous numbers! The others have P/E’s of 36, 37, and 38, which also suggests that they could be overvalued. Even if the market thinks they are worth their current prices, I can’t help thinking that there may be better value elsewhere. So I’m happy to keep holding what I’ve already got, but I don’t really want to buy more.
Well, as I see it, I’m not actually trying to underweight them, I’m just trying to avoid overweighting them. In my global stock tracker fund, Apple, Microsoft, Amazon, Facebook, and Alphabet are already the largest holdings and make up 15% of the total. Anyone with a basic global tracker fund already has substantial exposure to those companies at market weight. I would like to increase my tech sector exposure a bit (i’m underweight on tech and telecomms compared with the sector targets that I am following), but I don’t want to become over-concentrated in the same five stocks that I’ve already got a large chunk of in the global tracker.
Of course one could argue that an investor should just hold the broadest possible global tracker, keep everything at market weight, and spend their free time doing something else. But where’s the fun in that?