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Market giants seem to always go up, but let's take a closer look

Is Bigger Better? Looking at the Current Market Giants

By: Curt Stowers

The Current Leaders (Market Giants)

Recently the FAANG (Facebook, Amazon, Apple, Netflix, and Google) have gotten a ton of attention and caused many to suggest that things are different in the stock market than they have ever been. But is this true? Let’s take a look:

The market capitalization of the ten largest stocks over time

The above figure represents the market capitalization of the ten largest stocks over time. A few things jump out at me:

  • The range for the market cap of the largest ten companies has gone from 13.4% to 33.0% over the time frame from 1930 to 2020
  • This range has not been constantly increasing or constantly decreasing over time. It has been, from what I can see, random.
  • The biggest companies have “come and gone” over time.

Of all three of the above observations, it’s the last one that is the least intuitive to me. I can’t imagine a future without Facebook, Apple, Amazon, Netflix and Google occupying the top spots in our world and in the stock market. However, I suspect that, if I were back in 1930, I would have said the same thing about AT&T, GM, GE, Exxon, Marathon, and DuPont.

Who were the market giants in 2000?

Or if I think back to 2000—which I remember—I would have been very confident that Microsoft, GE, Cisco, Walmart, and Exxon would all still be “the leaders” in 2020. However, things have changed massively, and it has hurt some of the big five from 2000. Walmart is still big, but Amazon has definitely taken market share. In 2000, I couldn’t even conceive of Amazon!

Microsoft’s still a player, but open source code and SAAS is presenting it with challenges. Think about what happened to IBM. Cisco faded as competitors emerged. Exxon fell victim to accidents and the volatility of oil prices. Furthermore, the emphasis on environmental consciousness is creating headwinds for them going forward in time.

Should you invest in FAANG stocks?

Am I recommending AGAINST investing in any of the FAANG stocks? Nope. Am I recommending FOR investing in any of the FAANG stocks? Nope. I’m just making two points:

  • There have always been market leaders who appeared so entrenched that their position at the top would go on forever.
  • Things change, and the behemoths are displaced.

Investing is about the long term

From an investment strategy standpoint, this topic is also interesting. Some have argued as late that the small and value premiums are artifacts of the past. They could be right. However, for now I’m going to wait and see what the data shows over the next decade or so. Investing is NOT about the short term. It’s about the long term.

You can grab a link to a more detailed discussion on this topic at this link.

Large and in Charge, Giant Firms atop Market is Nothing New


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