The Economist recently pointed out just how much change there has been in the characteristics of the companies that make the list of the top ten market cap companies today versus 2006:
James Manyika, of the McKinsey Global Institute, points out that today’s superstar companies are big in different ways from their predecessors. In the old days companies with large revenues and global footprints almost always had lots of assets and employees. Some superstar companies, such as Walmart and Exxon, still do. But digital companies with huge market valuations and market shares typically have few assets. In 1990 the top three carmakers in Detroit between them had nominal revenues of $250 billion, a market capitalisation of $36 billion and 1.2m employees. In 2014 the top three companies in Silicon Valley had revenues of $247 billion and a market capitalisation of over $1 trillion but just 137,000 employees.
Three of the companies that made the list in 2006 continue to make the list today (Exxon Mobil, General Electric, and Microsoft). Here’s what I find most interesting about those companies that made the list at the end of 2006—their performance since that time has largely been dismal (with the exception of MSFT).
Microsoft was the only one of the ten to have performance that exceeded that of the S&P; 500. Six of the ten have actually had negative total returns since the end of 2006. Anyone who thinks it is safe to go with the biggest, most well-known companies for their portfolio would have been unpleasantly surprised by the results.
There is wisdom in the old adage The only constant in life is change. It’s true! The markets exemplify this reality every day. It is for this very reason that the relative strength tools you have at your fingertips with the Dorsey Wright Platform are so essential. They provide a disciplined way to stay with the relatively strong stocks and seek to avoid the relatively weak stocks.
The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. This example is presented for illustrative purposes only and does not represent a past recommendation.
