🎙️ Melting Iceberg

Yes, yes, we know the U.S. has some of the largest mega-cap stocks in the world — no other country has the same concentration of trillion-dollar+ companies.

But even within the U.S., there’s a striking gap between its two biggest stock exchanges.

The total market value of the 5 largest stocks traded on the New York Stock Exchange is $3.5 trillion, versus $11.6 trillion for the tech-heavy Nasdaq 🤯

The NYSE’s biggest name is Warren Buffett’s Berkshire Hathaway, which is about half the size of the Nasdaq’s fifth-biggest stock: Alphabet (Google’s parent company.)

💭 Nasdaq has long built its reputation as a hub for trading tech stocks, and that distinction is increasingly paying off for the exchange as Big Tech “eats the world.”

Our Chart of the Day shows more.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Truth Social goes public

• The decline of mutual funds

This, and more, in just 5 minutes to read.

Chart of the Day

In The News

📲 Approved Deal Brings Truth Social Public

We don’t do politics, but sometimes, politics and markets clash in unavoidable ways. Today’s top story is one such example: Shareholders in the shell stock Digital World Acquisition Corporation (DWAC) approved a merger this week with former President Trump’s social media company, Truth Social.

The process is different from Reddit’s IPO on Thursday, but the final result is the same — a new social media stock will be available for investors to trade.

The merger will form a new company, Trump Media, with the expected ticker: DJT, which could begin trading next week. The former President’s stake is valued at roughly $3 billion.

• So, DWAC will become DJT, and after rising over 140% in the past 6 months ahead of the merger vote, DWAC’s stock sold off 12% on Friday as investors locked in profits.

Why it matters:

With a user experience similar to Twitter/X, Truth Social is Trump Media’s primary focus, and the $275 million infusion from the deal is “much-needed,” writes Bloomberg, given that its growth has been underwhelming.

• Through September of 2023, Trump Media reportedly lost $49 million on just $3.4 million in revenue.

2 ½ year saga: Meanwhile, DWAC, a “blank check company” (aka a SPAC)—companies that raise money and go public with the sole purpose of acquiring a private business and bringing it public—announced plans to acquire Truth Social back in October 2021 and has become something of a “meme stock” ever since.

• In that time, the company has been mired in investigations by regulators for claims of misleading investors and insider trading, holding up the merger.
  

• Still, based on current prices, DWAC’s deal with Truth Social is set to be “one of the best performing SPAC deals ever,” writes the WSJ.

It is much less certain how the newly merged company trading under the ticker DJT will perform going forward, though. After the hype wears off, the burden of justifying its lofty valuation will increasingly fall on Truth Social’s user growth and earnings.

Read more

Together With Simon & Schuster

The Holy Grail of Investing

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Robbins, and renowned investor Christopher Zook, take you on a journey to interview a dozen of the world’s most successful investors in private equity, private credit, private real estate, and venture capital.

They share their favorite strategies and insights in this practical guidebook. 

💭 The Holy Grail of Investing is available wherever books are sold.

❓ The Mutual Fund at 100: Is It Becoming Obsolete?

A century ago, a former door-to-door salesman of pots and pans transformed financial markets. 

In 1924, Edward Leffler invented the open-ended mutual fund, allowing retail customers to buy a diversified portfolio of stocks and get a fair value when they wanted their money back. 

• A mutual fund combines money from many investors to buy investments, as overseen by professional managers.

The significance: Mutual funds allowed lower and middle-class investors to capitalize on the stock market and American capitalism.

As employers moved away from pension funds in the 1980s, mutual funds filled the void, becoming a staple of 401Ks.

Mutual funds manage nearly $20 trillion in U.S. assets and about $63 trillion worldwide, including everything from shares in tech startups to government bonds. 

• Over half of all American households hold shares in at least one mutual fund (including ETFs.)
  

• “The mutual fund has democratized investment. It has made investing accessible to the average person in an incredibly durable way,” noted one investment chair. 

Dominance no more: Today, traditional mutual funds are in demise, suffering over $1 trillion in net outflows over the past two years with only one positive month of inflows in the past 25 months. They’re a “melting iceberg,” one investor told the FT.

• Meanwhile, since becoming popular in the 1990s, exchange-traded funds (ETFs) have largely replaced mutual funds, with over $2 trillion of inflows since early 2021, including over $575 billion last year.

Why it matters:

The consensus view is that the mutual fund is slowly dying. While it still commands a massive pool of assets, its glory days are behind it.

Why? ETFs are often just better financial products. They trade throughout the day, as opposed to just once per day, and are more often passively managed, meaning they follow defined benchmarks and typically have lower fees.

Mutual funds also often have barriers to entry, like minimum investments, whereas ETFs are the opposite — many brokerages offer fractional shares in ETFs for as low as $1.

• As if that weren’t enough, ETFs also tend to be more tax-friendly (see here for a breakdown).

Not so fast: Mutual funds will still survive simply because generations of investors are familiar with them; they’re sticky.

• For long-time mutual fund investors, the benefits of ETFs are attractive, but they may not be compelling enough to undergo the process of switching over.
  

• Of course, many are locked into mutual funds in their 401Ks, with no option for ETFs if their company’s plan doesn’t include them.

Bottom line: There’s little room to argue that ETFs are supplanting traditional mutual funds, and most welcome that as a positive. After all, we’re in a world of zero-commission trading, and ETFs are nimbler — as in so many areas of the modern world, speed is winning. 

Mutual funds’ last advantage was their flexibility in accommodating active-investment approaches, but that was lost in 2019 when ETF rule changes opened a floodgate for asset managers who rushed to re-create active strategies in ETF form.

Read more

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💰 House of Representatives passes $1.2 trillion bill to avoid shutdown

Quick Poll

Yesterday, we asked: Assuming interest rates come down over the next year, you will…

— Said one reader, “The FED will keep rates higher than people suspect and not drop rates that much. Until inflation goes to 2% expect rates to be above 4% — and 4% is still a pretty good return on cash.”

— Added another, “I put more in cash outlets waiting for markets to correct - if we reduce rates before markets fall I will likely roll it into floating rate risk-free assets to anticipate inflation.”

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