World’s tallest buildings. Illustration: Ali Zifan. Source: Wikimedia
People are obsessed with lists of the tallest and the largest: the tallest buildings, the largest human-made structures, the highest mountains, even the biggest pumpkins. When something is big, it’s supposed to be important.
When it comes to the market, that does make some sense. Big companies, by market capitalization, have higher sales, are faster growing, employ more people, and often indicate a change in the way the world works. It’s interesting to look at which companies are the biggest right now, and how that list has changed over the years.
When you consider a list of the largest companies by market capitalization over the last 20 years, several things are striking. First, the list is incredibly dynamic. Only one company, Microsoft, has been in the top 10 the entire time. Two-thirds of the firms have only been in the list one time. Currently, 7 of the top 10 have never been on the list before. Second, the US dominates this list. Every year, US-domiciled firms comprise at least half of the list. Currently 8 of the top 10 firms have their headquarters over here. The second most important nation is China. 15% of the firms that have been in the top 10 over the past two decades have been Chinese.
Finally, it’s amazing how diversified the list is. At least five different industries have always been part of the top 10 firms. Until this year, energy always had the largest representation. But this year is different: 5 of the top 10 corporations are software firms. That may explain why so many of this year’s top companies are also new to the list. It doesn’t take as much infrastructure to bring a software company scale up as to grow an energy company, or a pharmaceutical giant.
The market is always changing, a massive, flowing river of information about the global economy, financial conditions, and human psychology. At any moment the current situation is uniquely different from what’s come before, but it’s also similar. The key to investing profitably is to remain flexible while maintaining our disciplines. As Heraclites wrote thousands of years ago, the only constant is change.
Douglas R. Tengdin, CFA