How the biggest companies are the worst investments

A startling look at the top 10 largest companies at the change of each decade, and why big public companies can be the worst investments.

a small fish in a big bowl eyeballs a big fish in a small bowl, indicating the biggest companies are npt always the best investments

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There is a belief among conservative retail investors that the largest publicly listed companies produce the most reliable returns.

They got to the top by ruling their market and have plenty of cash – so it makes sense, right? The cliché "too big to fail" comes to mind.

Paul Moore, chief investment officer at Sydney's PM Capital, has now shattered that theory.

Moore this week compared the top 10 biggest companies by market capitalisation at the turn of each decade since the 1980s. And he found the turnover in the club mind-blowing.

"It is rare for a stock to be in the top 10 at the start of one decade and to still be there at the start of the next decade ten years later," he said on Livewire.

"For example, in 1990 there were two survivors from the 1980 list, and in 2010 there were three survivors from the 2000 list. Since 1980 there have been no more than 30% 'survivor' stocks."

Top 10 shares by market capitalisation

1980

1990

2000

2010

2020

IBM (NYSE: IBM)

Nippon Telegraph And Telephone Corp (TYO: 9432)

Microsoft Corporation (NASDAQ: MSFT)

Exxon Mobil

Apple

AT&T Inc (NYSE: T)

Bank of Tokyo-Mitsubishi

General Electric

PetroChina Company Limited (SHA: 601857)

Microsoft

Exxon 

Industrial Bank of Japan

NTT Docomo Inc (TYO: 9437)

Apple Inc (NASDAQ: AAPL)

Amazon.com Inc (NASDAQ: AMZN)

Standard Oil

Sumitomo Mitsui Financial Group Inc (TYO: 8316)

Cisco Systems Inc (NASDAQ: CSCO)

BHP Group Ltd (ASX: BHP)

Facebook Inc (NASDAQ: FB)

Schlumberger NV (NYSE: SLB)

Toyota Motor Corp (TYO: 7203)

Walmart Inc (NYSE: WMT)

Microsoft

Alphabet Inc Class C (NASDAQ: GOOG)

Royal Dutch Shell Plc (AMS: RDSA)

Fuji Bank

Intel Corporation (NASDAQ: INTC)

Industrial And Commercial Bank Of China (SHA: 601398)

Alphabet Inc Class A (NASDAQ: GOOGL)

Mobil

Dai-Ichi Kangyo Bank

Nippon Telegraph And Telephone Corp

Petroleo Brasileiro SA Petrobras (BVMF: PETR4)

Johnson & Johnson (NYSE: JNJ)

Atlantic Richfield

IBM

Exxon Mobil Corporation (NYSE: XOM)

China Construction Bank (SHA: 601939)

Visa Inc (NYSE: V)

General Electric Company (NYSE: GE)

UFJ Bank

Lucent Technologies

Royal Dutch Shell Plc (AMS: RDSA)

Nestle

Eastman Kodak Company (NYSE: KODK)

Exxon

Deutsche Telekom AG (ETR: DTE)

Nestle SA (SWX: NESN)

Procter & Gamble Co (NYSE: PG)

Survivors from previous decade:

2

2

3

3

Source: PM Capital; Table created by author

So what does this mean?

The frequent turnover means a company currently among the largest has very little upside. In fact, it will be a struggle to just maintain the status quo and stay one of the largest.

So why would any investor put money into a company that has few upward prospects?

"An investor is more likely to pick the top for those stocks than get in at the bottom or at reasonable valuations," Moore said.

"Smart investors may want to consider how exposed they, and their managed funds, are to the top 10 stocks."

Buying up these giants goes against the classic axiom of not letting past performance dictate investment decisions.

The rise of index funds and exchange-traded funds (ETFs) has exacerbated the problem. The most-owned stocks become even more overheated because passive funds are obliged to buy into them. 

Then they become larger and the funds have to buy even more – it's a self-feeding cycle.

Which companies will make the top 10 in 2030?

Moore said wise investors would try to figure out the top 10 of the next decade.

And the arrival of the coronavirus pandemic and market crash presented a "once-in-a-lifetime" chance to pick out sunken "quality cyclical and industrial" shares.

"For example, commodity stocks post COVID-19 were at an all-time low compared to the rest of the market," he said.

"Stocks like Teck Resources Ltd (NYSE: TECK) and Freeport-McMoRan Inc (NYSE: FCX) have gained significant ground since the March lows but their valuations remain reasonable when considered against their long term outlooks."

The winning shares in the next 10 years would be those that drive "secular trend shifts", such as copper usage in global electrification, according to Moore. Those positioned for the forthcoming cyclical economic recovery would do well too.

"While they are unlikely to all end up in the top 10 of the MSCI World Index, we believe they will grow at a greater rate than the overall market and provide adequate investment returns."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Tony Yoo owns shares of Alphabet (A shares) and Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Intel and Johnson & Johnson and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A woman with black afro hair and wearing a white t-shirt shrugs and purses her lips
Cheap Shares

Are these top ASX shares dirt cheap and must-buys right now?

Is the market undervaluing these and giving you a buying opportunity?

Read more »

A happy older couple relax in a hammock together as they think about enjoying life with a passive income stream.
Investing Strategies

I'd aim to turn a $20,000 savings account into $25,400 of passive income

It doesn't matter if you don't have a pile of cash to start investing. The important thing is to start.

Read more »

A man closesly watch a clock, indicating a delay or timing issue on an ASX share price movement
Dividend Investing

25 ASX 200 shares with ex-dividend dates next week

There are 25 ASX 200 shares scheduled to go 'ex-div' next week.

Read more »

man doing stocktake at supermarket
Dividend Investing

Guess which ASX 200 stock is predicted to pay an 8% dividend yield in 2025

It could be rewarding to own this business.

Read more »

A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.
Dividend Investing

Want big income? Buy these high-yield ASX dividend shares

Analysts think these income options are in the buy zone right now.

Read more »

Blue Chip Shares

These super-strong ASX 200 blue chip shares could deliver 20% returns

Analysts believe big returns could be on the cards for owners of these shares.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

Analysts have put buy ratings on these ASX dividend stocks

Here's what they are saying about these dividend stocks following their results.

Read more »

An older couple driving in a convertible on a freeway.
Dividend Investing

1 ASX 200 dividend stock I'm buying for superior passive income in 2024

This ASX 200 dividend stock trades on a juicy yield and could see sizeable share price gains in 2024.

Read more »