What studies show about returns after hitting “Top Dog” status… why the Mag 7 stocks are effectively, Top Dogs… where Eric Fry is looking for outperformance… Luke Lango and how to invest in the government’s “Genesis Program” VIEW IN BROWSER Heavy lies the crown…especially in the stock market. For investors, “Top Dog” status – the #1 company by market capitalization – is often “dismayingly unattractive.” That conclusion comes from billionaire investor Rob Arnott, founder of Research Affiliates, whose research shows that market dominance is frequently the start of underperformance, not the reward for past success. In 2012, Arnott and Lillian Wu published “The Winners Curse: Too Big to Succeed?” The takeaway was simple: once a company reaches the summit of market cap dominance, the forces acting against it begin to multiply. Expectations soar. Scrutiny intensifies. Competitors sharpen their knives. And what once looked like unstoppable momentum turns into a battle just to justify today’s valuation. That’s not a hot take – it’s a data-grounded recurring pattern. And for today’s Magnificent Seven (Mag 7) investors, it’s a warning worth heeding. What history shows about being on top Arnott and his team studied what happens after a company becomes the largest player in its sector or country – what they call a “Top Dog.” The results weren’t encouraging for those chasing the biggest names. Here’s Arnott: We find a statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole.
Across U.S. markets, Arnott found that sector leaders underperformed their peers by roughly 300 – 400 basis points per year over the following decade. The reasons aren’t mysterious: diseconomies of scale, regulatory pressure, relentless competition, and – most importantly for investors today – valuations that assume past dominance can be endlessly extended. Back to Arnott: The organization with the #1 rank in market cap will often be a truly great company, but empirically is not necessarily a good investment. Therefore, investors should anticipate the underperformance of large companies relative to the overall market.
And that brings us to today – and to the Mag 7 stocks. Recommended Link | | Circle the date: Jan 26. That’s when Elon could reveal a project bigger than Tesla, SpaceX, and PayPal combined. Get the urgent details now. |  | |
To be clear, the entire group of Mag 7 stocks aren’t literal “Top Dogs” Definitionally, only one company can hold that title. However, functionally, with all of them in the top 10 of largest companies in the world, they fit Arnott’s framework: enormous scale, dominant narratives, heavy index concentration, and valuations that reflect an assumption of continued supremacy. For years, that assumption was justified with the Mag 7s. Expanding margins, massive free cash flow, and healthy capital returns supported premium multiples. But that support is starting to erode, and their prices reflect it. Here’s Bloomberg from last week: [Last year], For the first time since 2022, the majority of the Magnificent 7 tech giants performed worse than the S&P 500 Index.
And this shift has led to a 2026 forecast from our macro investing expert Eric Fry that deserves serious attention… Get ready for a lot more Mag 7 underperformance. Are we in for a new era of underperformance from yesterday’s market darlings? If you're new to the Digest, Eric is probably the best investor you’ve never heard of. He’s highlighted more investments that have gone on to return 1,000%+ than anyone else we know of in our industry – 41 in total, whereas most investors are lucky to get one. So, when Eric issues a warning, we listen. Today, he isn’t arguing that the Mag 7 are weak businesses. In fact, they remain enormously profitable and operationally dominant. The problem, he says, is the cost to maintain that dominance – and whether investors are accounting for this new reality. Here’s Eric from his latest issue of Fry’s Investment Report: The combined net cash position of Amazon, Microsoft, Apple, Meta, and Alphabet has collapsed from roughly $300 billion in 2017 to less than zero today.
That single data point reframes the entire story. Cash that once flowed freely into share buybacks, dividends, and opportunistic acquisitions is now being absorbed by data centers, power infrastructure, networking equipment, and ever-larger AI training runs. And Eric notes that this isn’t a temporary surge – the spending is accelerating: The five leading ‘hyper-scaler’ data center operators… have invested an astounding $1.5 trillion during the last five years… And the pace of spending is increasing.
In other words, AI leadership is no longer a high-margin bonus layered on top of already-dominant platforms. It has become a capital-intensive requirement – one with an uncertain and increasingly delayed payoff. This is where Arnott’s historical research and Eric’s analysis converge Markets don’t punish companies for being large. They lose patience when each new dollar invested produces less payoff than before – especially when valuations still reflect an earlier, more profitable era. As Eric puts it, the real risk for the Mag 7 isn’t that revenues suddenly stall. It’s that investors begin demanding a clearer timetable: I expect investors to start asking harder questions like, ‘Where does incremental free cash flow come from and when will it arrive?’… In that world, AI becomes a ‘cost center,’ rather than a powerful growth driver.
Now here’s what Mag 7 owners need to understand most… Eric doesn’t believe a recession or market shock is required for this shift to matter. The Mag 7s can begin to disappoint simply by adjusting to more realistic expectations. And according to Eric, “That world has arrived.” Where to find outsize returns today If you’re convinced that your Mag 7 exposure deserves trimming, the next question becomes: where do you redeploy those freed-up dollars? Eric offers two answers in his 2026 forecasts – both of which benefit from the opposite dynamic facing the Mag 7: lower expectations, saner valuations, and improving structural fundamentals. Let’s start with copper. Regular Digest readers know that I’m very bullish on copper (last Monday’s Digest presented my latest case). But it’s Eric’s research that turned me onto this idea years ago. And his conviction has only strengthened. In fact, if you think the last leg of the copper rally was impressive, Eric believes it may ultimately look like the warm-up act. Here’s his 2026 copper prediction: Copper prices will reach at least $8.00 per pound sometime in 2026 – driven by structural supply constraints and accelerating demand for electrification, AI infrastructure, renewables, grid expansion, and industrial modernization.
Independent research backs up Eric’s claims. S&P Global projects copper demand could surge roughly 50% by 2040. But the supply to meet this demand simply isn’t there. Back to Eric: The copper market is tilting toward long-term deficits. The International Copper Study Group (ICSG) expects today’s refined-copper balance to flip into a deficit of roughly 150,000 tonnes next year, as mine production growth slows and concentrate availability tightens. UBS anticipates an even larger deficit of 400,000 tonnes. Even if every currently announced copper project advances into production, the IEA still sees a 30% supply gap by 2035.
And that scarcity – combined with relentless demand growth – creates the kind of structural tailwind that the Mag 7 once enjoyed but can no longer take for granted. For a simple, one-click way to play copper, check out Sprott’s Copper Miners ETF (COPP). And to learn Eric’s preferred way to invest as an Investment Report subscriber, click here to learn about joining him. A second, contrarian idea from Eric… Buy Europe. I don't want to run too long today, so instead of unpacking this in full, I’ll give you Eric’s annotated investment thesis. At first glance, “Buy Europe’ sounds counterintuitive – especially after a decade in which “Buy America’ became investing gospel. But Eric’s forecast doesn’t hinge on Europe growing faster or innovating more than the U.S. It hinges on something markets may soon value more highly… Reliability. Here’s Eric: Energy shocks, supply-chain disruptions, war on its eastern flank, and now growing policy unpredictability from the United States have all delivered the same message… Europe can no longer assume that external commerce will always be reliable. So, Europe has begun doing something subtle, but powerful: prioritizing intra-European trade and supply chains. This is not protectionism in the old sense; it is selective self-reliance.
Eric’s argument is that this inward focus gives European stocks something investors traditionally pay a premium for – dependability and predictability in an age of mounting geopolitical noise. But today, European equities don’t carry any premium whatsoever. In fact, they trade at a substantial discount to U.S. stocks. Back to Eric: Not because European stocks are demonstrably inferior, but because of a collective “muscle memory.” Investors remain anchored to lingering narratives about both the U.S. and Europe.
Eric goes much deeper in his full analysis, building a compelling valuation and fundamental case. If you’re an Investment Report subscriber, click here to log in and read the entire case in your January issue. But for now, here’s Eric’s bottom line: The forecast is straightforward: European stocks are likely to outperform U.S. stocks in 2026 – not because Europe suddenly became exciting, but because it became dependable at precisely the moment dependability grew scarce.
For broad exposure to Europe, check out VGK, the Vanguard FTSE Europe ETF. It holds heavyweights including AstraZeneca (AZN), Novartis (NOVN), and Shell (SHEL). Before we wrap up, Luke Lango has a different take on the best way to redeploy your Mag 7 profits today While the Mag 7 stumbles, and Eric points us toward copper and Europe, Luke’s watching something most investors have completely missed… A $500 billion government mobilization that officially launched on November 24th. I’m referencing President Trump’s Genesis Mission executive order. Its goals are to: - Use AI to accelerate energy advancements
- Invest in a quantum ecosystem for scientific breakthroughs, and
- Develop AI for national security
It explicitly compares itself to the Manhattan Project and the Apollo Program. When the government threw its financial weight around like this before, companies like DuPont and Boeing delivered gains of 1,844% and 24,400% respectively. This time, 52 companies have been named to win the AI race against China, with hard deadlines starting February 22nd. These aren't trillion-dollar mega-caps. They’re small, obscure names in quantum computing, nuclear energy, and advanced semiconductors. Our technology expert Luke Lango has spent two months analyzing this opportunity, and he has the names for your portfolio. We’ll bring you his complete research next week when his Genesis Mission briefing goes live. But given how big this opportunity appears to be, I’d recommend holding some dry powder ready. Coming full circle… As we wrap up today, it’s a good time to remember what history says about returns after reaching “Top Dog” levels. In short, heavy lies the crown. Investing accordingly. Have a good evening, Jeff Remsburg | 
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