The Downfall of Big Tech? What the History of The Ten Largest Global Companies by Market Cap in Every Decade Teaches Us.

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As I write this in September 2020, the seven largest companies in the world are all technology companies. Despite the COVID-driven recession this year, big tech has emerged as clear winners in 2020 and for the entire past decade. At this point, buying stock in Amazon or Apple may seem like a safe bet.  At the risk of sounding blasphemous, I would argue that having a portfolio heavy in tech is actually very risky right now. Before you jump out and protest how I could be so blind as to not see the unquestionable dominance of Apple, Amazon, Facebook, Microsoft, Google, etc., I invite you journey with me back in time to review a history of giants, the largest companies in the world.

At their peak, the largest companies in the world always seem dominant, with insurmountable advantages of scale and optimistic outlooks. Yet, look at the list of the ten largest global companies every decade since 1980. Do you notice any interesting patterns?  

If it is truly the biggest getting stronger, you should see a list that doesn’t change much, which many members carrying over from one period to the next. Instead, the list each decade shows significant turnover of its members, often substantially. This is no accident. Look closer and you will notice that the largest companies in each decade often share a common theme.

                                                       1980 – Oil Companies (6 out of 10)
How we got there:Declines in petroleum production led to shortages in Western countries. The oil crisis of 1973 and the energy crisis of 1979 resulted in large spikes in oil prices. With their vast reserves of black gold, oil companies quickly became the most valuable companies in the world. 
The Aftermath: Oil prices peaked at $35 in 1980 ($109 in 2019 dollars) and then declined as low as $10 by 1986 ($23 in 2019 dollars). The fortunes of the oil companies fell along with oil prices.
                                                       1990 – Japanese Companies (8 out of 10)
How we got there:Japan was a devasted and drained country at the end of World War II. The new civilian government shifted the country’s focus from militaristic conquest to economic reconstruction. Japan’s economic recovery was boosted by significant US aid as Japan’s location in Asia became ever more strategic in the Cold War against the USSR. Japan became a manufacturing powerhouse, producing Toyota and Honda, semiconductors, and all types of consumer electronics. By the late 1980s, Japanese companies were the most valuable in the world. There was genuine fear of Japan’s economic dominance as Japanese companies acquired US companies and snapped up trophy US real estate.  
The Aftermath: Japan’s economic miracle led to speculation and excess, fueled by dangerous amounts of debt. Japan’s stock market and real estate bubble burst shortly thereafter. What followed was a lost decade of no growth. The NIKKEI stock index has yet to reclaim the peak from 1989, more than 30 years ago.
                                                       2000 – Internet / Telecommunications Companies (7 out of 10)
How we got there:A decade of economic growth and stock market gains convinced people that technological innovations of personal computing, the internet, and telecommunications would permanently boost the productivity and growth rate of the economy. Anything with a .com attached to it would soar in the stock market while the legacy businesses of the physical world were cast to the wayside. Investors were convinced a new golden age of technology had arrived that would assure 20% stock returns in the future.
The Aftermath: The internet stocks that soared the highest also crashed the hardest, with many losing 90%+ of their value. Although much capital was poured into technology projects and telecommunications infrastructure, most companies lost money. The most egregious didn’t even have revenues. Instead of enjoying 20% returns, US investors discovered they could create their own lost decade as US stocks lost money over the next 10 years. (Side note: Microsoft is only company from the 2000 list to make a reappearance for the 2020 list. It is one of those rare instances where a company is able to reinvent itself. However, Microsoft stock languished in between and took 16 years to reach its prior peak.)
                                                       2010 – Raw Materials / Emerging Markets (7 out of 10)
How we got there:The 2000s saw phenomenal growth of emerging market economies and their stock markets. The best emerging market countries even had their own acronym: BRICs (Brazil, Russia, India, and China). The rising demand for natural resources also carried with it the fortunes of oil companies such as PetroChina, Exxon Mobil, and Petrobas and mining companies such as BHP Billiton.
The Aftermath: The growth in emerging markets eventually had to slow, crushing the demand supply balance in raw materials. Emerging markets got its own lost decade as well. The Vanguard Emerging Markets ETF is currently in the mid $40s, a price that it first reached in 2007. Oil had a replay of the 1980s. The rise of shale oil again crushed oil prices and the fortunes of the once-mighty oil companies. Exxon Mobile sank so low it was recently kicked out of the Dow Jones index.
                                                       2020 – Technology Companies (7 out of 10)
How we got there:The 2010s witnessed the rise of giant tech companies. These giants combined scale, network effects, and walled-off ecosystems to produce highly profitable enterprises with high barriers to entry. Such a successful group of companies deserve their own acronym and Wall Street certainly didn’t disappoint. FAANG stocks refer to Facebook, Apple, Amazon, Netflix, and Google. More recently, Microsoft has swapped out Netflix to create FAAMG.
The Aftermath: TBD…

And so, our journey through time comes to an end. The past four decades have seen many giants toppled and many winning themes discarded. This reflects both the cyclicality of the markets and the tendency for investors to carry things to excess.

Two thousand years ago, the poet Horace already knew this truth.

“Many shall be restored that now are fallen and many shall fall that now are in honor.”

-Horace

As for what could trip up the tech darlings of 2020, perhaps it is slowing growth, high valuations, or antitrust issues. Although it is difficult to foresee the exact downfall in advance, what is clear is that for companies priced for perfection, anything less will simply not do.  

Disclosure:

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

The information in the article is provided for informational purposes only. It should not be construed as investment advice or advice on buying, selling, or other types of transactions relating to an investment in products or services, much less an invitation, an offer or a solicitation to invest.

The information in the article is provided solely by virtue of the fact that everyone will independently make their own investment decisions: the report does not take into account investment objectives, nor specific needs or financial situation. In addition, nothing in the article represents or is intended to express financial, legal, accounting or tax advice. You should consult your own investment or financial advisor before taking any actions.

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