Chart of the month
20 July 2020 - Over the past 50 years smaller to mid-sized companies have performed better than larger companies. Illustrated by the performance of 'world equal weighted' in the chart below. There's many reasons for that such as smaller organizations are more agile, less bureacratic, they are more focused and they often have the founder on-board. And founder familiy businesses tend to perform better than more mature institutionalized businesses. And as the businesses grow bigger it tends to loose speed and hence start to perform closer to the general average. And eventually it becomes really big and starts to fade.
In the past 5 years the picture has changed as US large cap growth stocks have outperformed everything else. In 2020 it's even more clear as the 10 largest market cap companies in USA are up 10% and the 'smallest 100' in S&P500 are down 30%. The first group trades at 33x cash flow and the other group trades at 11x cash flow.
It is still too early to say if the performance of the largest 10 is a function of outstanding strong performance over the next 20 years and driven by leadership in deep understanding of the value of digitalization. Or if it simply a function of more and more money being managed in index funds i.e. the biggest components gets most of the capital. With record low interest rates the flow into stocks support that argument.
The next 10-20 years will be driven by deeper and deeper digitalization. A lot of new businesses will come up and explore value creation opportunities, so don't rule out the effect of 'equal weight' going forward as newcomers make their way in to the indicies.
Roadmap 2020, roadmap updates and insights
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Roadmap 2020 update 2Q
Roadmap 2020 update 1Q