Look Forward Not Backward

Twitter Source: Joachim Dressler (@thevolawatcher)

You don’t drive looking in the rear-view mirror and you shouldn’t invest looking backwards either. The largest, most valuable stocks now will not be the same in ten years. Today those stocks are confusingly known as FAANGM (an acronym for Facebook, Amazon, Apple, Netflix, Google and Microsoft). We might also include Tesla so FAANGMT. These stocks are advancing seemingly every day. Investors are betting their fortunes will not change and they will grow to the sky. This just isn’t how it works.

The exhibit above shows the change in the largest 10 U.S. stocks by decade. The turnover is high and staying in the top 10 is difficult. Half the companies just ten years ago are not in the top 10 including the number one company, Exxon. And over the last twenty years, only two are still in the top 10, Microsoft and Walmart. Some companies remained in the top 10 for numerous decades, like Exxon and GE, but this is the exception, not the rule.

Investors should heed the message of the chart above and be careful about simply buying what has recently done well. Successful driving and investing requires looking forward, not backward.