Most investors are playing a dangerous game and don’t even know it. Relentless marketing from big financial firms about the virtues of index funds and ETFs has dulled investors’ judgment and masked the risks of these products. A closer look at the performance of the equity market makes these risks more visible — and reveals the opportunities for patient, value-oriented investors.

Stock market performance has been highly concentrated. If you look closely at the performance of the stock market, you’ll see that most of its recent gains have been highly concentrated in ten momentum stocks. FANG and Friends (Amazon, Microsoft, Alphabet, Facebook, Starbucks, Netflix, EBay, Salesforce, Priceline, and Apple) gained an average of 46% in 2015, while the remaining securities in the S&P 500 averaged a loss of nearly 2.4%.

FANG & Friends stock gain in 2015

46

Chart 1 — Source: Bloomberg

From a weighted index perspective, the FANG and Friends stocks contributed 2.63% to the S&P 500 Index’s gain of 1.31% in 2015, which means that the other 490 stocks lost 1.3%!