Nvidia (NVDA), Meta (META), and Alphabet (GOOG, GOOGL) are some of the biggest names in the markets right now. But history shows that some of today’s “top dogs” will likely fall out of favor at some point. Research Affiliates founder and chairman of the board Rob Arnott explains why in the video above.
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00:00 Speaker A
If you go back historically, um, take the 10 most valuable companies on the planet decade by decade, 1980, 1990, 2000, 2010, 20, and today. Um,
00:23 Speaker A
two or three of the top 10 are still in the top 10 10 years later.
00:30 Speaker A
Never more than three, never less than two. If you take the 10 largest US market cap stocks, um,
00:46 Speaker A
three, uh, three or four are gone within five years. In every single five-year span in the last 50 years.
01:03 Speaker A
Every single span five-year span, three or four are gone. Uh, in just five years.
01:08 Speaker B
Gone out of that top.
01:09 Speaker A
Out of the top. Yeah. Not gone, gone. But um,
01:12 Speaker B
Right. Yes.
01:17 Speaker A
change is normal. Change is the essential element of a healthy capitalist economy.
01:28 Speaker A
And creative destruction is normal. Disruptors get disrupted. You look at the most valuable companies on the planet in the year 2000. Number one was Microsoft, still in the top three. Pogo’s around, but it’s still in the top three. But interesting, uh, you had to hold it for 18 years before you were ahead of the S&P.
01:52 Speaker B
Well, and you would have had to hold it through its Department of Justice, the the whole monopoly, you know, you
02:00 Speaker A
Yeah.
02:00 Speaker B
that would have required a high degree of conviction.
02:02 Speaker A
lousy stock in the 2000s, great stock in the 2010s and 20s.
02:07 Speaker B
Right.
02:08 Speaker A
But 18 years is a long time to wait. That’s the only stock in uh the 10 most valuable tech stocks in the world in 2000, the only one that beat the S&P over the next 20 years.
02:29 Speaker B
So, how do you know which one to pick now? That will be that one.
02:34 Speaker A
You can try to pick the one or you can just say, hmm,
02:40 Speaker A
if it’s a top dog today, chances are it’s a little overpriced. Chances are it is priced for perfection and some of them will achieve it and most won’t. So, maybe I should just go light on those. Um,
03:02 Speaker A
back to the year 2000. Number two on the list was GE, not really a tech stock, but cresting on its way to irrelevance. Uh, number three was um uh Cisco. Cisco is still lower than it was in the year 2000. It was priced for 40% per annum growth. It had a quarter century of 8% per annum growth. 8% is wonderful, it’s just not 40. Number four on the list was Intel. It had a moat. It was the dominant uh semiconductor and chip producer on the planet. Nobody could touch them. except AMD, uh ASLM, uh SML, um, Taiwan semi, and now Nvidia. Uh, it’s now number five chip producer in the world. and even 50 billion from the Chips Act couldn’t put them back on track.
03:57 Speaker A
Um, next on the list was Lucent, gone.
04:02 Speaker B
Right.
04:02 Speaker A
Next was Nokia.
04:03 Speaker B
That one actually is gone pretty, you know, that that one is didn’t just fall out of the top.
04:07 Speaker A
Yeah. Next is Nokia. They still make phones. Hallelujah. Uh, so, Nokia, sixth most valuable company in the world in the year 2000.
04:24 Speaker B
Okay, so if you don’t then over-index to those biggest of names, what do you do? How do you try and figure out either who will be the the biggest coming up or, you know, capture ones that do have significant upside?
04:47 Speaker A
Figuring out who will be the biggest, uh is a wonderfully fun parlor game. Um, the likelihood of guessing right on that is pretty low. I would just fade the top dogs. That is to say, go underweight. and if they keep soaring, go underweight a little more. Uh, just like averaging in to a falling market is a wonderful strategy, averaging out of a frothy market is a wonderful strategy.
