The Intelligent Investor's Almanac
Your Bi-Weekly Guide to Markets, Movements, & Money.
Presented By Ken Majmudar & Ridgewood Investments
Issue 17 • November 04 to November 15, 2025
Never miss another valuable edition of The Intelligent Investor's Almanac again.
✦ TL;DR — Your Institutional Intelligence in Minutes
We cover two major wealth dynamics in this issue:
The Maturing of Digital Assets:
- Market Insight: The top nine tech stocks now represent nearly 38% of the S&P 500, a level of concentration unseen in fifty years.
- Hidden Risk: Passive flows and policy tailwinds have turned diversification into dependence on a few mega-caps, creating valuation and liquidity imbalances.
- Next Step: Reassess your portfolio’s true diversification by shifting exposure towards non-tech sectors and global markets driven by different cycles.
✦ Action: Schedule a Private Consultation to assess whether your portfolio’s exposure to dominant U.S. mega-caps has gradually increased, and explore ways to rebalance toward undervalued sectors and global opportunities for broader portfolio diversification.
Equity Compensation Decoded: RSUs vs. Stock Options:
- Core Insight: RSUs grant ownership automatically at vesting, while stock options require purchase at a fixed exercise price, each distinct in value and control.
- Planning Priority: RSUs offer predictability but less flexibility; options carry higher upside and timing advantages but greater tax and liquidity risk.
- Next Step: Build a tax and liquidity plan around vesting and liquidity timing to convert concentrated equity into long-term, diversified wealth.
✦Action: Schedule a Private Consultation to review your RSU and stock option holdings and create a roadmap for diversification and tax optimization.
The Value Investor
Ken Majmudar, CFA & Founder of Ridgewood Investments
“You make the most money when things go from truly awful to merely bad”
– Joel Greenblatt
For most market participants, the S&P 500 is viewed as a representation of the entire U.S. economy, yet today it reflects the dominance of a few firms rather than the diversity of an entire economy.
While the index has sustained its upward momentum, the sources of its returns have become increasingly concentrated. This issue examines how these shifts have concentrated returns among a small group of large companies, why valuation levels influence long-term outcomes, and what practical steps investors can take to achieve effective diversification.
A similar principle applies to equity compensation. RSUs and stock options are important drivers for wealth creation, but without planning, they can expose employees to the same concentration risks akin to the current market environment. In this issue, we explore how strategic diversification across portfolios and equity compensation can help maintain balance and adaptability across market cycles.
The S&P 500: When Diversification Becomes Concentration
Many investors prefer simple index investing. This implies buying an S&P 500 index fund as a common example, a benchmark of 500 leading U.S. companies that has historically reflected the broad performance of the American stock market. But in recent years, most of the gains from these index funds have come from a few very large companies. This issue examines how policy, scale, and passive flows created such market concentration, how market cycles have evolved under similar conditions in the past, and how investors can diversify effectively while maintaining exposure to leading businesses.
Understanding the S&P 500 and Why It Matters for Investors
Portfolios relying on index exposure have grown increasingly dependent on a small group of dominant companies. Index investing is considered as a cost-efficient approach to diversification while achieving long-term appreciation with low fees, but the current market environment has reduced the diversification role within portfolios for investors following passive strategies.
The S&P 500, which historically represented broader market participation in American enterprise, has become increasingly defined by a concentrated set of large corporations. Today, top nine tech companies account for 38% of its value, a highly concentrated distribution unseen in the last fifty years. This evolution highlights how a diversified index can evolve into a concentrated bet, and the measures needed for sustainable balance in the portfolio.
As dominant firms increasingly drive market leadership, investors often see steady index performance without realizing that the index may continue to rise even when most of the gains come from a small number of companies, making portfolios appear diversified even when they’re not. Diversification still exists, but its role in portfolio composition has changed. The S&P 500 remains diversified by name yet concentrated by market value, driven more by a handful of tech companies rather than the real economy it once represented.
The Composition of the Modern S&P 500
The distribution of sectors within the S&P 500 reflects a structural shift across sectors. Technology and communication services represent more than one-third of the index, while real economy sectors remain at historically low levels. These sectors have benefited from structural growth, digital adoption, and investor preference for scalable business models. Meanwhile, more cyclical and value oriented sectors such as energy, utilities, and consumer staples have become less influential in driving index performance, making overall returns increasingly dependent on a concentrated group of large-cap companies.
Beyond sector composition, valuation differences have increased. The five largest holdings; NVIDIA, Apple, Microsoft, Alphabet, and Amazon, trade at nearly twice the median P/E of the remaining 495 companies. Two factors have driven this imbalance: the growth in passive fund flows, and the expanding valuation gap between top firms and the broader market.
The S&P 500’s total market capitalization stands at roughly $57.8 trillion, with the seven largest technology firms; NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla, accounting for about $21.9 trillion, or 38% of its value. Nvidia alone represents nearly 8% of the index, exceeding the combined capitalization of the bottom ~230 companies. In effect, the S&P 500 has evolved into a concentrated technology-growth fund, highlighting the importance of diversifying across other asset classes, such as value-oriented stocks, mid-caps, and international equities to achieve an optimal level of portfolio diversification.
How the S&P 500 Has Evolved Over Time
Over the past four decades, the top ten S&P 500 companies have continuously evolved; IBM, Exxon, and GE in the 1980s; telecom and global consumer brands in the 1990s; GE, Cisco, and Microsoft by 2000; leading energy firms and major banks in 2010; and in the current market landscape, platform technology, consumer internet companies and AI infrastructure companies like Apple, Microsoft, NVIDIA, and Broadcom now represent the largest share of the index.
At the 2000 peak, technology stocks represented over 25% of the S&P 500’s weight, and five-year forward returns turned negative despite continued innovation. The S&P 500 currently trades near a P/E of 30, higher than in 2000 and almost double its long-term average of 16.
The Hidden Risk of Concentration
Over the past nine years, the technology sector’s share of the S&P 500 has increased from less than 10% in 2016 to over 30% in 2025, making index returns more dependent on the price movements of leading technology stocks. As a result overall performance has become more sensitive to changes in investor sentiment toward major tech companies.
Concentration risk in the current market environment is driven by three main factors:
Policy exposure: Policy or regulatory changes affecting large-cap tech companies can have a negative impact on the entire index.
Liquidity feedback: When index funds experience withdrawals, they sell the same large holdings with the highest weighting in the benchmark, increasing short-term volatility.
Valuation asymmetry: When stock valuations trade above their long-term averages, even a temporary challenge for the business can lead to a significant decline in the stock price.
Strategies to Manage Concentration Risk in Portfolio
Managing concentration risk means focusing on asset allocation over the long term. A well-diversified portfolio is balanced by investments less correlated with dominant U.S. market leaders and the index. Diversification can be enhanced by gradually increasing exposure to assets and geographies associated with different cycles, valuations, and industry dynamics.
Maintaining exposure to leading U.S. businesses while gradually increasing allocations to overlooked or undervalued segments improves portfolio diversification.
Value-oriented and mid-cap businesses, particularly in industrials, energy, and financials, continue to trade at multi-year relative lows despite fundamentally resilient businesses supported by steady cash flows.
Notably, international markets such as Europe, Japan and India offer cyclical recovery and currency tailwinds that contrast with the slower multiple expansion in U.S. technology. Within domestic equities, sectors including healthcare, utilities, and consumer staples still provide earnings stability at discounts to history, providing stability as market leadership expands and becomes more diversified.
Five Practical Ways to Manage Concentration Risk
Dynastic Wealth – Tips on Preserving and Building Your Legacy
Equity Compensation Decoded: RSUs vs. Stock Options
Many professionals receive equity from their workplace (i.e., RSUs and Stock Options) as part of their total compensation. It has become an essential way for companies to attract and retain talent, and aligns employees’ interests with the long-term growth of the company. This section explores how they differ in structure, risk, and control, and how each influences long-term wealth outcomes.
RSUs vs. Stock Options: Features, Risk, and Control
Restricted Stock Units (RSUs) and Stock Options are often mistaken for one another, but they operate under different rules.
RSUs: It automatically converts into company stock according to a fixed vesting schedule (meaning the employee gains actual ownership of shares once they vest), and the market value at vesting is treated as ordinary income for tax purposes.
Stock Options: Offers the employees the right to purchase shares at a set price; they hold value only when the market price exceeds that level.
In practice, private companies use both forms of equity compensation to appeal to distinct groups of employees. RSUs require less active management, as employees are not required to spend cash upfront or navigate tax planning in advance. Options, on the other hand, offer greater upside potential if the company’s value grows, but they also carry higher risk, given the cash and tax exposure when the shares are purchased.
Option holders can decide when to purchase shares, allowing them to align timing with liquidity opportunities or favorable tax periods. RSUs, in contrast, follow a predetermined schedule and automatically trigger taxation as they vest, leaving less flexibility to the employee.
For employers, RSUs suit mature companies that want predictable costs and limited dilution. Startups, on the other hand, often use stock options to attract early talent and reward future growth. Recent policy changes have addressed one of the biggest challenges with options. Traditionally, employees had only three months after leaving a company to buy vested shares before they expired. Many tech and venture firms now allow several years to exercise, giving employees more flexibility and reducing the need for a large upfront payment.
In short, RSUs provide predictable value but less flexibility, while options offer higher upside with more complexity and timing decisions.
Managing Tax Planning and Cash Flow Management
Equity compensation effectively creates a second paycheck and an additional form of income paid in stock rather than cash. RSUs are taxed automatically upon vesting, based on the stock’s fair market value at that time. The value is treated as ordinary income and included in the employee’s annual tax form.
Most companies deduct taxes upfront at a flat federal rate, commonly 22% or 37%, but that often underestimates the real tax obligation. If total income falls within a higher bracket, additional taxes may be due at filing.
A common strategy is to sell a small portion of vested RSUs to cover the tax liability or adjust your regular paycheck tax deductions before year-end.
Tax Management Tactics:
Review your own tax rate against your employer’s flat deduction, as many high-income taxpayers may have an outstanding balance at year-end.
Sell some shares or increase your payroll withholding to cover taxes when RSUs vest.
Estimate potential AMT (Alternative Minimum Tax) costs before exercising Incentive Stock Options (ISOs), especially if you live in a high-tax state.
Schedule stock sales and exercise options to balance income across years.
Consider charitable donations (e.g., DAFs) to offset gains and increase deductions.
Charitable contribution creates additional ways for optimization. Gifting stock instead of cash, either to a donor-advised fund or directly to a qualified charity, excludes unrealized gains from the taxable income while allowing an immediate deduction in the current tax year.
Planning Equity for Liquidity and Long-Term Flexibility
Converting equity (RSUs and stock options) into long-term wealth requires active planning beyond vesting and liquidation. For many employees, the time allowed to exercise options after leaving a company determines how much value can ultimately be realized. Historically, employees had only three months after leaving a company to buy their vested option shares before they expired. In newer policies, many tech and venture firms now allow several years to make that purchase, giving people more time to decide over an extended horizon without having to make a substantial initial investment.
Exercising stock options, particularly in private or fast-growing firms, can be costly since it requires cash for both the purchase and taxes. Some companies offer cashless exercises or internal financing, though these programs typically favor senior employees. Understanding your company’s rules and personal cash-flow limits helps prevent unexpected liabilities.
Holding a concentrated position in a single stock, particularly in one’s employer, increases concentration risk. Consequently, many professionals adopt structured selling programs, such as 10b5-1 plans, which pre-schedule share sales and help maintain diversification across different asset classes.Once liquidity goals are met, long-term planning focuses on how equity fits within the overall portfolio.
When company stock becomes a large part of personal wealth, advanced estate and tax tools, such as GRATs and IDGTs, can help transfer that wealth efficiently while reducing taxes. Donor-Advised Funds offer another option for tax-efficient charitable giving aligned with family goals. Under current law, the Qualified Small Business Stock (QSBS) provision allows exclusions of up to $15 million per issuer, creating additional flexibility for people who own shares in fast-growing companies. At every level, the objective is the same, convert concentrated holdings into diversified, long-term assets that maintain liquidity needs and stability.
Here’s to building lasting wealth,
Ken Majmudar, CFA
Founder & Chief Investment Officer Ridgewood Investments
P.S. If you’re ready to explore how our institutional-grade investment approach can work for your portfolio, let’s schedule a time to talk below.
Gain Industry – Level Intelligence For Your Investment Strategy
Transform your approach to wealth building with institutional-grade insights. Schedule a private discovery call with Ken and the Ridgewood team to:
- Analyze your current portfolio positioning
- Explore sophisticated investment opportunities
- Design your personalized wealth architecture
Building generational wealth requires institutional-grade thinking. Let’s discuss how our sophisticated approach can work for your family’s future.
Important Disclosure: Ridgewood Investments is a registered investment adviser. This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.