In a world of disruption, the winner takes it all

by Finploris
In a world of disruption, the winner takes it all

Growth traditionally means looking ahead 5 to 10 years or longer, seeking out companies that can at least double sales and earnings in this timeframe, and that will still be growing when they get there. Value on the other hand usually means investing in companies that are trading at a discount to the notional intrinsic value. As a result, value investors such as Warren Buffett are buying companies cheaply when other investors have over-reacted to bad short-term news and are waiting for a reversion to historic mean.

However, the margin of safety and the corresponding mean reversion could not be a useful model anymore. In consequence of innovative companies that grow at unexampled rates and at slight marginal costs. Particularly, because intangible assets such as data, intellectual property and networks mainly determine future cashflows. These assets can generate stunning and increasing returns to winner takes all dynamics, whereby mean reversion often becomes a desperate hope. In addition, securities with growing cashflows have outweighed depressed securities with primarily tangible assets and an obvious downside protection. Why would offline retailer company shares mean revert if online shopping is becoming both more comfortable and more transparent?

Studies elucidate that just a vanishingly small number of stocks generate the vast majority of long-term wealth creation in the stock market. In conclusion, finding the prospective power stocks matters. Therefore, now is the time to anticipate that more and more financial, economic and social activities have moved online with a wide range of new and promising opportunities.

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