When people talk about “the stock market,” they might actually be thinking of the Dow Jones Industrial Average, or the S&P 500 Index. These lists are what they sound like: averages and indexes of exchange-traded securities.

And one popular school of investing calls for buying index “funds,” collections that offer a slice of what’s happening on one of those lists. The goal is to capture the list’s average return. It’s simple, easy, and relatively inexpensive to seek to replicate those market averages.

But there’s a tradeoff. There have been extended periods when those averages basically went nowhere for many years at a time. The “average” approach means you are by definition going with the crowd. But crowds can become herds, which can turn into stampedes.

This is what happened with the raging Nifty Fifty and again in the Tech Wreck.

Back in 1973, the “Nifty Fifty” stocks were all the rage. Many scrambled to buy and hold these dominating stocks, names like IBM, Xerox, or Coca Cola. One might say there was a stampede into the favored names. Valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%.

It took until 1982 to regain that 1973 peak, before moving any higher: a decade with essentially no progress.

It happened again from March 2000 to 2013, a time that got the nickname the “Lost Decade.” This time, the mania was internet stocks. Technology and communications companies dominated the S&P 500, and investors got excited. Again, more people stampeded in, valuations got stretched, the S&P 500 peaked—and proceeded to fall about 50%. Not until 2013 did the index begin to make and hold new, higher ground.

So what was problematic about those peaks? The largest companies became a much larger fraction of the total value of the S&P 500. The top companies in 1973 and 2000 had become worth many times the bottom companies combined.

Staying with the crowd—buying indexes and aiming to capture averages—is not the only way to invest. In those episodes from history, some other sectors fared better than the fallen favorites and broad U.S. market averages. There were those smaller companies, value-style investments, and overseas markets that generally went up during the Lost Decade.

At 228 Main, our core investing principles include “avoid the stampede” and “seek the best bargains.” As such, while the largest companies in the S&P 500 are becoming increasingly concentrated at the top—reminiscent of 1973 and 2000—valuations may be getting stretched once again. We are seeking to have more and more of our portfolios invested other places. (Research is a core activity here, a daily discipline, and we invest a lot of time and energy into it.)

That is to say, we’re seeking opportunities outside the averages. We’ve got our eye on value-style companies—those that seem to provide a lot of current profits, or cash flow, or dividends relative to each dollar invested. We’re seeking companies operating in faster-growing economies, the ones that provide food, shelter, transportation, communications, or energy (and are trading at more attractive prices). We want to know what’s happening with smaller companies, the opportunities that don’t fit the profile of those mega-sized names that dominate the market averages today.

There are tradeoffs involved with either approach.

• When we follow the averages, we risk following the crowd straight into a stampede.

• When we buy the bargains, our particular favorites may get cheaper while the darlings of the market are still climbing higher. Our portfolio performance could generally lag a red-hot market.

To be clear, we are still invested in those large U.S. growth companies we’ve mentioned. But, clients, we’re more diversified now than we’ve been at any time since the early 2000s. Even though we may be on the right track for long-term investors, it can be lonely to be contrarian. So it’s times like these that it helps to check in, take the long view, and make sure the methods suit the goals.

And for us, it’s the pursuit of capturing the potential growth, for the long run. No guarantees, but that’s what we’re working toward.

Clients, please call or email us if you would like to talk about this or anything else.

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

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