Dancing With Giants

Will the big software giants eat the world?

Big Five market cap. Source: The Atlantic

Everyone is buzzing about the big five: Apple, Google, Microsoft, Amazon, and Facebook. Ten years ago, their combined market cap was just under $600 billion. Now it’s almost $3 trillion – a five-fold increase, or 16% per year. This was more than twice the general US market’s return, and three times to global market.

This, in a nutshell, is why active portfolio managers are struggling to keep up with passive indices today. The disciplines of conventional active management – diversification, rebalancing, emphasis on small and mid-cap names – run against concentrated, sector-specific, big-company growth.

But, as Shakespeare said, there is a tide in the affairs of men – and managers. It ebbs and floods, leading to times of feast or famine. We see various investment approaches go in and out of favor all the time. These are the salad days for passive indexing. Before this, dividend growth investing was all the rage. Before that, everyone was a value investor – or claimed to be. Prior to that, global thematic investing was the flavor-of-the-month.

There’s more than one way to skin a cat, and lots of ways to invest. Each approach has its strengths and weaknesses. It’s critical to stick to your discipline – to “dance with the one that brung ya’.” Don’t get discouraged and switch to a new style just because what you’re doing is temporarily out of favor. Chances are, the new model will start to under-perform just as you start to use it.

The most important thing to bring to the market is discipline. And an easy way to be undisciplined, is to change disciplines.

Douglas R. Tengdin, CFA

By |2017-07-17T12:21:19-04:00May 18th, 2017|Global Market Update|Comments Off on Dancing With Giants

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