A recent study shows that 4% of the stocks are responsible for almost all of the gains in the broad indices. This study is not just for the most recent period. Also, other studies show that over time, most companies lose value. This makes sense given that creative destruction is an essential process of capitalism. New ideas, processes and technology regularly displace the old. Even companies that survive may lose economic importance. At the turn of the nineteenth century U.S. Steel was the most valuable and important company in our country. Today, the market capitalization of “big steel” is barely mid-cap in size. Think of all the companies that we grew up with that no longer exist, names like Zenith, RCA, Sears, and on and on.
Capitalism moves on. The past and the weak are discarded. Today’s most valuable companies are new with names that would have seemed amusing not long ago. They are now essential parts of our lives. Successful investing recognizes that change is inevitable. Getting in front of value creation and avoiding its destruction is fundamental. This is an easy concept to understand but, in real time, difficult to implement. This is what the Bull and his partners work at doing every day. It is what makes our work such a challenge and exciting at the same time. Stay steady my friends.
The Lonely Bull