More from HTG Investment Advisors on investing in the current market. Do today’s largest companies hold the best opportunity for growth?
The slide is from Dimensional Fund Advisors, who prepares many wonderful materials on investing. Many thanks to DFA for sharing this resource.
Single Stock Success Stories
Have friends shared how well their Apple or Facebook stock did last year? We tend to remember the single stock success stories. This is a graph prepared by the investment firm Dimensional Fund Advisors to visually communicate that the highest valued companies do not stay at the top forever.
Each color represents a different company. The top ten most valuable companies are listed for each of the last ten decades.
No Company Stays on Top Forever
Permanent dominance may seem guaranteed at the time, but the global economy is complex; technologies and personal preferences change and new firms find opportunities and grow faster than those at the top.
It is important to remember that no firm can grow faster than its market forever. While exceptional past growth got them to the top, other firms will grow faster in the future.
I started in the profession in 1982. IBM was dominant. Then Exxon … then GE … now Apple. It is unlikely that all of today’s ten will be still on top a decade from now.
A Better Approach
Trying to pick the future winners introduces unnecessary risk.
The better strategy to grow wealth is to invest in all stocks, big and small, maintain the investment through up and down markets, and avoid chasing yesterday’s winners.
For more on this topic, read our blog How to Beat the Stock Market.