Today, we’re re-telling the story of a stock market bubble that almost no one talks about anymore. One that looks eerily familiar to today’s market. It was a bubble that, when it popped, the damage was ugly. The market lost half of its value, and investors had to wait almost a decade just to break even. Introducing: the Nifty Fifty.

Let’s get into it →

Worried about losing money when investing? You’re not alone.

In just 15 minutes, we’ll show you how to avoid common investing mistakes and build a strategy you can trust.

The story starts in the late 1960s. America had just spent two decades on an economic sugar rush after World War 2: factories were humming, suburbs were sprouting like weeds, and the average American felt like their country could do no wrong.

People had money. They had swagger. And most importantly, they had blind optimism. And honestly, why wouldn’t they?

The U.S. had just beaten Germany in World War 2 and dropped a man on the moon. Life was good.

And in the middle of this optimism sat the stock market. From the end of WW2 in 1945 to 1970, the average U.S. household saw its net worth multiply by four.

This unprecedented enthusiasm led to a new strategy in investing becoming popularised. It was known as investing in “one decision stocks”. The concept was simple: invest in companies so powerful and so dominant that you only ever have one decision to make: buy.

These stocks became known as the Nifty Fifty.

The Nifty Fifty wasn’t comprised of penny stocks, or emerging tech companies, but companies that had dominant market shares and generated stable cash flows. They were the bluest of blue chips: Coca-Cola, McDonald’s, American Express… Companies so big they weren’t just brands; they were American culture itself.

Investors saw these companies as bullet proof. And because of this, the idea of ever selling any of these stocks was considered unwise (and borderline unpatriotic).

Here’s the thing about investing. If something sounds like a no-brainer investment with zero downside, it’s almost always a financial grenade with the pin already pulled.

And that was exactly the case here. By the early 1970s, the Nifty Fifty stocks weren’t just expensive, they were priced like the laws of gravity didn’t affect Wall Street.

For context: the average earnings multiple for the overall market at the time was a perfectly reasonable 15x.

In order words: pay $15 for $1 of annual earnings. That’s a respectable 7% return, the kind you can bring home to your parents.

But the “never sell” mantra around the Nifty Fifty pushed valuations into fantasy land. Investors were willing to pay anything for a slice of American Greatness.

Disney at 71x. McDonald’s at 86x. Polaroid at 90x. And the list goes on… At those prices, buyers were effectively accepting returns close to 1%.

And it didn’t just stop there. At their peak, the top five Nifty Fifty companies made up roughly a quarter of the entire U.S. stock market. The full fifty? Almost half.

Think about that. Half of the entire economy’s value concentrated in fifty “bulletproof” companies… all priced for perfection. What could possibly go wrong?

Then came 1973. The dominoes fell, and reality slapped the optimists across the face. OPEC turned off the oil taps, causing prices to prices to skyrocket. Inflation followed suit. More than 1 out of 10 Americans were out of work.

The S&P 500 plunged, causing the worst bear market since the Great Depression. And when the economy cracks, overpriced stocks don’t “correct”; they get obliterated.

Inside the Nifty Fifty, the damage was severe: Wall Street’s darlings came crashing down, with some losing up to 90% of their value from the previous year.

The “one-decision stocks” turned into one big financial obituary.

Here’s the real gut punch: the damage wasn’t quick. There wasn’t a V-shaped recovery like we saw after the pandemic. It took the market eight years, until 1981, to crawl back to the same level it had been at before the bubble popped. Even longer if you account for inflation.

That’s the Nifty Fifty collapse in plain English: great businesses, terrible investments at the wrong price. Investors who thought they were buying eternal growth stocks spent almost a decade in financial purgatory.

I could try to scare you by pointing at today’s market, which rhymes uncomfortably with the early 1970s.

The Magnificent Seven dominate the index and trade at nosebleed multiples. It feels a lot like the “one-decision stock” era. One nasty macro shock and—boom—multi-year hangover.

But I don’t want to talk about that. I want to talk about the bigger lesson, the one that actually changes outcomes:

Quality + patience beats everything else.

Picture yourself in 1972, as one of the optimists who buys the entire Nifty Fifty: 2% of your portfolio in each name. Now imagine 49 of the 50 stocks go to zero.

This is actually harsher than what happened in reality, as some went bust and others became legends. In any case, only one survivor remains in your portfolio: Philip Morris.

If you had kept that part invested in Philip Morris until today, even with the other 98% of the portfolio going to zero, your total annualised returns would still be more than 25% per year, meaning you obliterated the S&P 500’s returns.

In order to do that, you had to hold on for dear life to this high-quality company. Through the ups (when it looks expensive) and the downs (like during the Nifty Fifty crash).

That’s a lot easier said than done. In 1973, when the bloodbath took place, investors sold everything.

Valuation matters. Overpay, and even the most dominant companies can disappoint.

But over longer time frames, quality matters more. Own businesses that compound and pay dividends, and your entry price fades. Time will do the heavy lifting.

The free version ends here. From here on, it’s members-only. Upgrade to get our thoughts on what’s happening in the market, and the stocks we’re actually buying/selling.

The trades, the ratings, and the thinking, straight from the RatedA desk.

Markets change. Businesses change. Our ratings change with them. In the past two weeks, one company joined the RatedA database for the first time.

We track how our Quality Ratings perform over time to see if higher-rated companies actually deliver stronger returns. Each rating category’s results are measured over a year and compared to the MSCI World Index, then refreshed annually when we update ratings.

We put our own money where our ratings are. The RatedA portfolio is a focused collection of high-quality, cash-flowing companies picked using our own methodology.