The Next Generation of Market Leaders

“At the heart of capitalism is creative destruction.”

-Joseph A. Schumpeter

Last month we discussed (again!) the extraordinary growth of Apple as it became the first ever company with a market capitalization greater than $2 trillion, not even two years after it became the first to reach the $1 trillion mark. Along with Facebook, Alphabet (Google), Amazon, and Microsoft, it has driven the massive tech surge in the market in recent years. According to the Wall Street Journal (September 9 2020, p. B9), these five stocks alone added $2.87 trillion in market capitalization in 2020, more than the entire S&P 500. It seems there is no end in sight for these giants. History tells us otherwise.

In the market, what often seems so permanent can be washed away like a sand castle at high tide -- and like the oceans’ tides, the tidal forces of the market are unceasing and strong. At the beginning of September, ExxonMobil was removed from the Dow Jones Industrial Average. It had been in the Dow since it expanded from 20 to 30 names in 1928. As recently as 2011, it was the largest cap stock the U.S. market; it is now not in the top 35. AT&T was the largest stock in the market 43% of the past 95 years. In the 1930s, it was relatively much bigger than Apple is now, accounting for fully 1/8 of the market’s value; now it barely makes the top 30. General Electric was in the original 12-stock DJIA introduced in 1896, it was removed in 2018, and at $6 per share (down over 90% from its peak) is in a fight for its survival. The list goes on and on; U.S. Steel, Sears Roebuck, and General Motors come to mind. Remember original Dow component U.S. Leather? Oh well.

The next generation’s market leaders (and fortune generators!) will likely be different. And the “turnaround” time, as the last two decades have clearly shown us, is apt to be quicker than in the past. So be on the lookout for the next market leaders. What will it be? Energy (again) owing to new fusion technology? Robotics? Artificial intelligence? Man/machine interfaces? Virtual reality? Or something we haven’t thought of yet? Be alert, but also remember the wisdom of diversification. For every Apple there is a “can’t miss” Pets.com horror story -- round trip from splashy IPO to bankruptcy in 263 days. When you’re in the midst of it, destruction never seems creative; just ask any K-Mart shopper!

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