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Triumph of the Optimists Thumbnail

Triumph of the Optimists

Mike Earl, CFP®, CPWA®

Amidst the politically-charged climate in which we live, we can lose sight of the progress and innovation taking place across the globe year after year.

We often remind our clients the U.S. stock market has handsomely paid patient, long-term investors over time. 

One simple method for gauging economic progress over time is to consider the evolution of the largest publicly-traded companies in the US. Of the ten largest companies in the US today, only four were founded prior to 1970 (JPMorgan Chase; Johnson & Johnson; Procter & Gamble; and Visa).

We intuitively understand that technological growth occurs at an exponential rate – rather than a linear growth rate. But we tend to think technology is an isolated part of the human experience; e.g. technology is about smartphones, Apple products, and the Internet. We don’t think about how technology is a factor at every company in America – whether their business is “technological” in nature or not.

It might be obvious to you, but companies don’t have lifetime spots reserved in the S&P 500 Index. In fact, the rate of turnover within the S&P 500 Index appears to be increasing.

Of the ten largest companies in the US right now, only one of those companies was also in the top ten back in 2000.

Conversely, this means that 9 out of the 10 largest companies in 2000 are no longer in the top ten today. That’s 90% turnover!

If you’re a fan of capitalism and its attendant “creative destruction”, this is a welcome development. It’s harder than ever to stay on top in today’s economy.

In the 1960s, companies had an average tenure of 33 years in the S&P 500.

Today, that average tenure has shrunk down to 23 years.

Back in 1999 (that’s only 20 years ago, after all), GE was the 2nd-largest company in the world. Today, GE doesn’t crack the top 100 list of the largest companies in the world.

Yet we are not playing a zero-sum game. Yes, there are winners and losers. But over time, there have been greater cumulative wins than losses – as world population grows, world wealth grows, productivity expands, and new products are continually created.

By investing in the US stock market, you are not investing in an amorphous blob. You are investing in a basket of fiercely competitive companies. As companies die, new companies take their places – and grow the overall pie. By using a diversified investment strategy (in a basket of broadly-diversified, low-cost, innovative index funds), you inherently own a slice of this constantly-evolving group of companies around the globe. 

1) https://www.visualcapitalist.com/a-visual-history-of-the-largest-companies-by-market-cap-1999-today/  

2) https://www.innosight.com/insight/creative-destruction/

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 is not a recommendation to purchase or sell the stocks of the companies pictured/mentioned.  Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision.