Should you buy and hold blue-chip firms?
Endowus Insights

Should you buy and hold blue-chip firms?

January 5, 2020
"I think there is a world market for maybe five computers."
  • Thomas Watson, President of IBM, 1943
image of airpods
Source: Apple

I recently bought my first pair of wireless earbuds. After hours of reading reviews, blogs and product sites, I settled on the Cambridge Audio Melomania 1 for their amazing 45-hour battery life and sound quality.

It was only a few years ago that Apple introduced the AirPods. It was not an immediate hit, but they were certainly onto something. Today, we have pretty high adoption in all categories and a full-blown market of wireless buds. I have seen AirPods copycats for as low as $10, and diamond-studded audiophile absurdities for over $5,000.

The newest Airpods Pro seemed to be a particularly popular gift this Christmas.

What we consider 'normal' changes quickly.

It wasn't too long ago that touchscreen phones were denied access to our pockets as some of us swore allegiance to the Blackberry. Or Nokia before that. I remember colleagues saying "I will never use a touchscreen keypad."

We have entered a new decade: the 2020s. What reigns supreme and seems unstoppable now will eventually be toppled. A good indicator of business dominance is which public companies have the largest market caps in the world and how this has changed through time.

Let's take a look back at the largest companies in the world for the last four decades

table of largest public companies in the world by market cap

Two interesting observations:

  • Only two companies (Exxon and Microsoft) have managed to stay on the list for three decades. Exxon Mobil was likely only able to stay on the list through its record-breaking US$78 billion merger with Mobil in 1998.
  • Once off the list, it is unlikely that a company will get back on. This might just be random but is clearly evident by looking back at the last four decades. It could also be structural in that big companies can, at a point, be dragged down by being too big. More research must be done on this observation.

Propelled by our curiosity, greed, and desire to improve, humans are constantly competing and innovating.

At a tangible level, all of us churn through information and products on a daily basis based on our decisions to buy anything from a coffee to a plane ticket to an apartment. We pick what survives or dies based on our adoption or rejection of ideas and things that we think will help us live better.

Wireless earbuds seem to have earned their survival, at least for now.

On a less tangible level, the financial markets, represented by humans buying and selling paper (stocks and bonds mainly), churn through information at lightning speed, trying to understand the current business and future potential of all companies. We try to buy things that are "underpriced" in the hope that the price will go up more and with less risk than investing money elsewhere. Profits, power, politics, perceptions and most importantly people are all at play in setting these constantly fluctuating prices.

Is the price right? It is more right than you or I can consistently beat it.

Read more: The very annoying efficient market hypothesis and how to beat it (Endowus Insights)

It is our advice to use price by diversifying. Let your money participate in collective human ingenuity and progress.

Don't get left behind.

If you think you can guess what the list of top companies by market cap will look like at the end of 2029 and 2039, I wish you good luck.

I won't make that call but am willing to bet that companies not yet in existence, even as a dream, will be on the list.

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