The chuckles. For a hard-hearted individual, I get them a lot.

On Wednesday, I found myself giggling uncontrollably at this quote:

I like thinking big. I always have. To me it’s very simple: If you are going to be thinking anyway, you might as well think big.

That’s… well, you know exactly what that is. It’s a quote from America’s last and next president, and it’s all kinds of funny for all kinds of reasons, not least of which is this part: “If you are going to be thinking anyway…” Thinking isn’t like, say, driving. It’s more like breathing. You might tell someone, “If you’re going to be driving anyway, you might as well listen to a podcast,” but you wouldn’t say, “If you’re going to be breathing anyway, you might as well breath deep.”

Anyway, the context is the Magnificent 7, and specifically Goldman’s recommendation that investors don’t underweight the biggest names in the index even if the rest of corporate America manages to close various gaps.

As discussed here, the bank’s David Kostin used quotes from Trump’s “The Art of the Deal” throughout Goldman’s year-ahead equity outlook. In the “Think Big” section, he wrote that “the most consequential decision an equity investor had to make during the past two years was how much of a portfolio to allocate to the seven largest stocks in the index.”

Over that two-year period (i.e., from end-2022 through today), the Mag7 returned nearly 150%, accounting for well more than half of the aggregate index gain and just “slightly” better than the 35% return for the so-called “S&P 493.”

Of course, most analysts (all of them, actually) expect “493” earnings growth to catch up to Mag7 earnings growth. And indeed, as Kostin noted, the outperformance gap has “narrowed sharply” in anticipation of that. Still, you shouldn’t be a hero, or at least not if that means underweighting the Mag7. PMs who “went there” (think Tropic Thunder) had a rough go of it, while those who went with it (i.e., leaned into the mega-caps) did well.

Kostin has the numbers on that. “In 2024, only 24% of large-cap core equity mutual funds have outperformed the benchmark; an examination of the holdings of the top and bottom quartile performing funds explains the gap in returns,” he wrote, noting that top-quartile PMs were neutral the Mag7 while bottom-quartile funds were underweight by an average of 19ppt (that’s a lot) versus the S&P.

Goldman does expect Mag7 outperformance to narrow, and dramatically at that. The figure below gives you some context.

7ppt would be the smallest outperformance in seven years (excluding 2022, when the Mag7 struggled with rate hikes and very difficult top-line comps from 2021), commensurate with consensus expectations for a relatively narrow 6ppt EPS growth gap (18% for the Mag7 in 2025 versus 12% for the “493”).

But, again, it’s too risky to be anything other than benchmark-weight in the mega-caps. Kostin’s call: “We recommend investors benchmark the Magnificent 7 and seek opportunities in mid-cap equities.” He noted that the S&P 400 “has a long track record of outperformance versus large- and small-cap stocks, similar consensus earnings growth as large-caps and trades at a lower absolute P/E multiple [of] 16x.”

So, sure, look for bargains and alpha as you will, and venture down the size and, perhaps, down the quality, ladder if you must, but don’t stray too far from the vaunted septet. Because, as Kostin wrote, “Astute mutual fund managers have benefited by adhering to Donald Trump’s advice from his #1 bestselling book: ‘Think Big.'”

“You’re going to be thinking anyway…” Cue the chuckles.