Read this Periscope for an astonishing perspective on the recent past and a prediction for the future.
These Companies are Big
Recently, I wrote that the SP500 has never been more concentrated than it is today. Five companies make up nearly $1 out of $4 that a person invests.
When you purchase the SP500 index in your 401k at work, your recent returns have been dominated by these companies. The SP500 is market-weighted. This means that the larger these companies get, the more influence they have on the index. The trend is not likely changing.
No, Really Big!
This chart came across my desk recently and I had to share it. AAPL, Amazon, Microsoft, Facebook, and Google are so large that they are becoming unfathomable. Look at the little stack of the world’s largest companies from the year 2005: General Electric, Exxon Mobil, Microsoft, Citigroup, BP, Wal-Mart, Royal Dutch Shell, Johnson & Johnson.
All of the world’s largest companies put together don’t equal the market value of Apple today! This is a staggering statistic. This speaks to the incredible value the world’s largest companies deliver to us today.
But it also reveals the risks. The world’s largest companies from 2005 are not bad companies. I can’t think of one that went bankrupt. However, they were completely eclipsed by these newer companies. It reveals the old truth: past performance is not indicative of future performance.
Imagine sitting in your house in 2005, looking at a similar chart. The size of GE, Exxon Mobil, Microsoft, Citigroup and the rest would be staggering. You would see a similar small stack of companies from 1990, and that list might have been completely different. Past performance is clearly not indicative of future performance. We do not recommend you overly invest in today’s most recent winners—because they may be eclipsed.
One opportunity today is to find those companies that will grow in the future. This potential “future growth” strategy is one of the handful of strategies we choose for our clients. A future growth money manager looks for companies that are investing in themselves, with a large addressable market, with a unique value proposition, a top management team and a skill set that is difficult to steal. These companies are “smaller companies” but, in comparison to that chart, every company in the history of the world is small.
We have been here a long time. I remember the 2000 stock market crash, when dot.com companies cratered. These “future growth” stars were all the rage in 1999. So this strategy comes with inherent risks. We pair “future growth” with other strategies that move differently and also have a history of success.
For more information about what we see now, and what we see coming, consider listening in on our next ZOOM broadcast on September 9th: Economic and Market Outlook.