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Beat The Market By Investing In These Stocks
Data shows investing in monopolies or duopolies outperform the market by a wide margin.
Monopoly companies, on average, returned double that of the S&P 500 benchmark during 2001-2010.
From the Market Sentiment Substack (emphasis added):
“65% of the companies in the list (below) beat the benchmark and only in 2 cases would you have lost money on your investments (yes, even adjusting for inflation).”
Applied Economics investigated the stock returns of companies with sustainable competitive advantage (the moat).
Sam Zell — legendary billionaire real estate investor — said it best in his book “Am I Being Too Subtle?”
“Frankly, there’s no substitute for limited competition. You can be a genius, but if there’s a lot of competition, it won’t matter… I jokingly tell people that competition is great — for you. Me, I’d rather have a natural monopoly, and if I can’t get that, I'll take an oligopoly.”
Investing in monopolies. Easy.
For example, Google dominates the search market. Google controls 64% of all desktop searches and 94% of all global and mobile tablet searches. (We own Google in our Flagship portfolio.)
It’s not just Google. Check out the monopoly/duopoly/oligopoly nature of most tech products.
You obviously know these companies. You’re likely using several products or services from these companies every day.
You do so because their products or services are second to none. Some of them have been the incumbents for decades.
But companies and countries alike are claiming and/or suing these market leaders for suppressing the competition. Hoarding talent. Charging unreasonable prices. And/or abusing customer data in some form or fashion.
We’d venture to guess the majority of us sympathize in one way or another against whoever is trying to compete against these market leaders. And maybe even advocate for these monopolies to be broken up.
That’s where objectivity comes in.
Active investing is about making money. Your personal feelings towards an individual company is an impediment to potentially outperforming the market.
Whether you like it or not… investing in monopolies has proven to outperform.
Here’s what we said in our missive on May 25th, 2021 titled Why You Want To Own Monopolies:
“Amazon. Apple. Google. Facebook. Netflix. (They're so dominant, you probably know them as the FAANGs).
All monopolies. All companies that would've made you many times your money had you invested in them the day you knew they were monopolies. (My guess - most of us didn't. Or bought and sold too soon. Actually, I think this is just a confession).
Apple's up more than 30x since it launched the iPhone in 2007. Amazon's up 20x in the past 10 years. Google's been dominating searches for decades. It's up more than 15x since 2009. The list goes on. These weren't unknown companies. They were already multi-billion companies that dominated our lives and time.
You didn't need to be a genius. You just needed to own them because they were monopolies.”
The best part. You don’t need to own stocks before they become monopolies. You can buy once they’ve already established themselves.
It’s okay to miss out on early gains for companies that go from disruptors to monopolies because most companies die. From Market Sentiment:
At Mighty, we do try and invest in disruptors. It’s part of our Three Pillared Strategy.
But we don’t go all-in on Disruptors. Because as the data above shows… many of these companies try and fail. Then die.
So we have two other pillars — Trophy Assets and Income/Hedges — to sustain us and our clients for the long haul.
The companies in our Trophy Assets are, in fact, monopolies in some form or fashion.
But remember, in order to outperform the market, you don’t need to buy them on day one.
You can sit back and wait until these companies establish themselves as monopolies.
Then let them do their thing.
That’s the way to beat the market.
Good investing,
Lance