Mike Earl, CFP®, CPWA®
It hasn’t always been this easy to invest in businesses. Writing of the 15th and 16th centuries in Europe, scholar Wilfred McClay writes:
“The rapid expansion of trade was remaking the social and political map of Europe, at the same time that explorers were redrawing the physical map. In earlier eras, wealth and power had rested in the hands of those who owned land, but that was about to change. The years of expanding seaborne travel saw the rising economic and political power of a merchant class made up of those traders who had become wealthy from the risks and rewards of expanding commerce.”
- from Land of Hope: An Invitation to the Great American Story, by Wilfred McClay
Expanding commerce. That has a nice ring to it. Those merchants pooled capital together to send ships on long journeys to trade with other people groups and explore new lands. Talk about risking capital with no assurance of any return on investment!
When we invest money for clients today, are we not participating in the expansion of commerce? We can invest globally, quickly, easily, and with almost zero costs (thanks Jack Bogle). US companies now obtain more than 40% of their revenue from countries outside the US. As I like to put it: when you’re on a walk with your loved ones at night, your dollars are working for you in other time zones all around the globe – as companies you invest in are doing business abroad.
I like to think about the “Philosophy of Stock Investing”. Why do we invest in stocks? Why should we stay invested in stocks, even when there is fear and uncertainty in our country and around the world?
At root, investing in the stock market allows you to invest in businesses. And we believe that businesses can do a lot of good in the world.
One of the reasons the US stock market has been so resilient in the face of COVID-19 has been the continued dominance of US-based technology firms – Apple, Microsoft, Amazon, Facebook, and Alphabet. While I don’t endorse every single initiative of these firms (and I do recognize that technology has both positive and negative impacts on the world), I do use their products nearly every day – and they have made my life more productive and enjoyable in numerous ways.
Those five companies now account for 20% of the entire publicly-traded US stock market, and they collectively generate $900 billion of revenue each year.
Looking beyond those Big Five, the top 45 companies in America now comprise more than half of the value of the entire S&P 500 Index. These mega firms have displayed the ability to weather the COVID storm remarkably well, which has helped buoy the entire stock market.
The growth of these companies (and countless other companies in the US and abroad) has been astounding. Consider the following:
- The iPhone was launched just 13 years ago. Apple now generates about $143 billion per year in iPhone revenue alone.
- Microsoft Azure (cloud computing side of their business) was launched just 10 years ago. Microsoft now generates about $33 billion of revenue from Azure.
- Amazon’s revenue 10 years ago was “just” $34 billion; today, it’s $280 billion!
- Facebook’s revenue 10 years ago was less than $2 billion; they are now over $70 billion per year.
By investing in these companies, both parties win (which is the very core of commerce/capitalism): they get capital from my investment, and I grow my capital over time as their businesses grow. I literally share in their profits! What a great deal.
Lastly, check out the fascinating infographic below from Visual Capitalist.
Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the team members providing such comments, and should not be regarded as a description of advisory services provided by The Wealth Group or performance returns of any client of The Wealth Group.
The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The Wealth Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered
representative of the U.S. stock market. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance may not be indicative of future results.