03/18/2021

Video Guide: Large and In Charge; Giant Firms Atop the Market is Nothing New

By Lex Zaharoff

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

Video Transcription

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.

Lex Zaharoff, CFA

Lex joined HTG in 2014. With over 40 years of experience advising wealthy families at four major private banks, Lex provides clients with a unique perspective on the art and the science of investing to achieve one’s financial goals.

As Adjunct Professor of Finance at NYU’s Stern School of Business, Lex teaches the MBA course on wealth management. He has a BSE from Princeton University and an MBA from Harvard Business School.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.