Stocktake: Today’s winners are often tomorrow’s losers

Searching for the next generation of market leaders is a fool’s game

Index fund guru John Bogle advised: don’t look for the needle in the haystack, just buy the haystack

Index fund guru John Bogle advised: don’t look for the needle in the haystack, just buy the haystack

 

As 2021 draws to a close, strategists are busy prognosticating as to which companies will come out in top in 2022 and beyond.

Tomorrow’s winners will be different, says Katie Koch of Goldman Sachs. If you look at the 10 most valuable companies in the world 20 years ago, only one – Microsoft – is still on the list today, Koch noted last week.

The other nine companies have actually lost a cumulative $235 billion of market capitalisation, which “speaks to the importance of finding the next generation of companies”.

But does it?

Koch is right to point to the so-called winner’s curse – the long-standing tendency for the world’s biggest companies to subsequently underperform. Not overweighting one’s portfolio with yesterday’s winners is all very well, but searching for the “next generation” is a fool’s game.

In the 1980s, strategists were making the case for technology companies such as Commodore, Wang Laboratories and a bunch of other forgotten names. In the 1990s, investors were ploughing into America Online, Netscape and Yahoo.

As it happened, three of the biggest US stock-market winners of the last two decades included an energy drink maker, a farm retailer and a trucking company. Who saw that coming?

For 2022 and beyond, investors should remember the timeless words of index fund guru John Bogle: don’t look for the needle in the haystack, just buy the haystack.

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