Episode summary
We Asked Chris Bloomstran Why He Won’t Own the S&P 500 At These Levels — And What He Does Instead
Excess Returns
· · 1 hr 9 min · Guests: Chris Bloomstran
Summary
Chris Bloomstran argues that today’s market concentration is unlike anything in history: the top seven stocks now dominate index profits and valuations, but their scale forces them to keep reinvesting huge sums just to sustain growth. He calls the current setup a “secular plateau” rather than a simple peak, saying investors in a cap-weighted index face muted long-term returns if growth slows or margins compress.
A major theme is AI capital spending. Bloomstran says the hyperscalers are in a classic capital cycle, pouring hundreds of billions into data centers, chips, and infrastructure with little current revenue to match. He thinks much of that revenue is circular, coming from the same companies funding one another, and he worries that leverage and redundancy could eventually crush returns on capital.
He contrasts that with Semper Augustus’s own portfolio, which is lower-leverage, lower-multiple, and built around businesses that can reinvest at attractive rates. He also discusses Berkshire Hathaway’s enormous cash pile as a sign of both patience and opportunity, and says Greg Abel will likely be more aggressive than Warren Buffett in deploying it when prices are right.
Key takeaways
- Bloomstran says the Mag 7’s size makes it harder for them to sustain past growth rates, even if their businesses remain excellent.
- He believes AI spending is a classic capital cycle, with hundreds of billions in capex likely to face redundancy and margin pressure.
- He says the S&P 500’s concentration makes passive investors more exposed than they realize because seven stocks drive a disproportionate share of profits.
- Bloomstran says Semper Augustus prefers businesses with low leverage, strong cash flow, and reinvestment opportunities at mid- to high-teens returns.
- He argues Berkshire’s cash hoard reflects scarce attractive opportunities now, but also gives Greg Abel flexibility to deploy capital aggressively later.
Notable quotes
“the math gets to be skewed against the investor that owns the stock market per se and not a portfolio of stocks”
“I'm calling this a secular plateau, which allows for a four-year rolling window of prices being high”
“this AI uh boom uh which is most likely a capital classic capital cycle”
“there's a growing amount of offbalance sheet leverage as well”
“I think this is a classic capital cycle um canals, railroads, automobiles, auto infrastructure”
How the episode opens
History shows when you get this kind of concentration and it's unprecedented today to have seven companies as big or to have the top 10 be as big, but there's there's no decade or period where the top 10 businesses were all the same top 10 businesses. The businesses have to sustain the returns from their already current operations and they're essentially investing so much money. You're doubling the size of your infrastructure and you've not only going to make returns on the old assets, but you've got to make returns on the new assets.
And right now the revenues are not there. And the revenues that are there in many cases are coming from each other, making capital investments in each other, lending each other money, borrowing against chips. I think the the the the math gets to be skewed against the investor that owns the stock market per se and not a portfolio of stocks.
Chris, welcome to Excess Returns. Oh, it's good to be with you guys. After uh uh trying to get these calendars coordinated, I think for first time we shuffled around was when I wound up with two variants of staff infection following my latest
Hip replacement. — Yeah, that was kind of a rough patch in there. but uh — In September of last year. So uh with a lot of moving our dates around here we are finally — Well in between that and this you know monster of the annual letter that you were you know chipping away at uh you were busy that I'm thoroughly relieved to be finished with again.
You gave us time to read it. — Yeah it takes a while to write and no easy thing to read either. — I loved it.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market concentration
- ai capex
- passive investing risk
- valuation discipline
- capital allocation
Companies and tickers mentioned
- BRK-B
- BRK-A
- AAPL
- KO
- Semper Augustus Investments
- Berkshire Hathaway
- Apple
- Coca-Cola
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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