The Holy Grail of Investing/Wealth Creation?
To preface, this post definitely strays from the macro and technical charts that this site is almost entirely dedicated to.
And while there is likely no “Holy Grail” strategy when it comes to investing and wealth creation, the lessons provided by the table below probably approximate such a strategy, if it existed, as much as any other.
The table below shows the 20 best performing surviving firms in the S&P500 from 1957-2006 and is excerpted from Jeremy Siegel’s book, Stocks for the Long Run.
While the table is dated by six years, we doubt the results would be much different if updated through today.
Regardless, what do you see when you look at the 20 best performing firms?
This is what I notice:
1) All but four of the top 20 are members of either the consumer staples or healthcare sectors
2) Of the 16 that come from consumer staples or healthcare, 11 come from the former and only five from the latter
3) Not a single technology company made the list, despite the huge amounts of innovation that occurred in this sector over the period in question (not even MSFT!)
4) The list is composed of companies that are global in their scope and have defendable business models with higher barriers to entry
5) The list is composed of companies that have historically been less expensive from a valuation basis and have delivered solid, steady and consistent rates of earnings and revenue growth over time
Are the latter then the only boxes on the checklist that one needs to hit to maximize wealth creation, regardless of secular bull/bear cycles and financial panics, over time?
What companies might be on this list in 50 years, if not the same ones below?
What are the implications of this analysis for the globe’s largest market cap company at the moment – AAPL?
What about Facebook or any company that is currently a high growth, high valuation, market darling?