Pretty sure the proposed solution is to buy stocks of the U.S. technology giants: Amazon, Apple, Facebook, Microsoft, and Alphabet, the parent company of Google.
In 2007 the largest companies were: Exxon, GE, Microsoft, PetroChina, Royal Dutch Shell, Citigroup, AT&T, Gazprom, BP, Toyota, Bank of America, China Mobile, HSBC, ICBC, Walmart. All have performed at a mediocre level at best over that time. See:
https://www.bloomberg.com/news/articles/2017-09-11/apple-vau...
Is Amazon going to grow into a $2 trillion market cap over the next ten years? No, there is zero possibility of that happening. It'll be very lucky to grow into its existing market cap today, over that ten years. Keep in mind, they have $100 billion in retail sales, generating Walmart style margins on that business; Walmart has ~$450 billion in retail sales, generating ~$15 billion in net income. For that, Walmart gets to trade at half the market cap of Amazon. That's Amazon's future value compression. That multiple erosion won't occur until the market starts to realize the AWS growth machine isn't going to last forever (AWS representing a very large portion of the Amazon stock appreciation the last three years), as that growth curve slows in the next few years, the market will push down on Amazon's present extreme premium.
Netflix has a ~200 PE ratio, there is no means for it to ever justify its existing valuation (400 million global subscribers? no chance), much less a far higher one. Their present business model has never proven the ability to produce good margins, content has perpetually sapped their earnings potential and is likely to continue to do so.
Facebook and Google will stagnate and grow into their valuations. Google particularly is trading far beyond where it should versus its now modest growth rate. ~37 times earnings, $700 billion market cap, for 10%-15% annual growth over the next five years? No thanks. In the not very distant future, Google will pull a Microsoft and begin paying out a dividend, after this latest stock market bubble ends and their stock returns drift to mediocrity.
If you're going to "just own the damn robots" at any price, you're essentially paying for this sort of insurance.
Microsoft for example has barely grown its income in a decade. On what planet should they have a 28 pe ratio? The stock has tripled (!) in five years on the back of zero income growth. It's massive value destruction just waiting to happen. Shareholders will not just sit, hold and tolerate the inevitable value destruction that is looming, it doesn't work as insurance at all in such a context.
It's not the new normal. That's what people say to justify extreme premiums during times in which investors have overly inflated valuations. This is the third bubbly tech era in the last 20 years. That new normal premise has been used frequently in each.
I understand why Microsoft has inflated. It doesn't jive with actual results in the post Ballmer era. There isn't even a hint of the kind of growth that could justify such an elevated PE ratio (elevated for a company with no growth for years). Their fast growth areas are struggling to off-set what they're losing in eroding, old business franchises. Net result, they're standing still.
missed dividends
the possibility that Microsoft grows its profits more
the possibility the stock keeps rising, and then even if it falls, it's still higher than the price you sold
The last reason is why timing the market is so hard. Had you sold the S&P 500 in early 1996 because it was 'too expensive', you would have never been able to buy back at a lower price, ever, even after the crash of 2000-2002 and 2008-2009, and you would have missed all the dividends.
"We delivered $90.0 billion in revenue and $22.3 billion in operating income this past fiscal year. Adjusting for Windows 10 revenue deferrals and restructuring expenses, revenue was $96.7 billion with $29.3 billion in operating income."
That is 31% more revenue and 34% more operating income compared to 2012 (the 5 year time period you're citing). Stock backs will also move the price -- there's almost a billion fewer shares outstanding now than there were 5 years ago.
Of course, investors buy companies for future performance and not for past performance. I would suggest that investors like MSFT's current strategy and management considerably more than their past, and as the management continues to increase profits, investors gain more confidence.
That said, Amazon and google are in the robot hardware business literally, too.
Google doesn't sell robots. I don't know if they use them, apart from a few for research.
Consider robo-advisors [0], automated financial advisors written in software.
Facebook and Google will stagnate and grow into their valuations. Google particularly is trading far beyond where it should versus its now modest growth rate. ~37 times earnings, $700 billion market cap, for 10%-15% annual growth over the next five years? No thanks. In the not very distant future, Google will pull a Microsoft and begin paying out a dividend, after this latest stock market bubble ends and their stock returns drift to mediocrity.
People said that three, five, ten years ago. What is happening is that the market for mobile and desktop ads and e-commerce is growing, combined with increased market share for these three companies, creating a double tailwind. I'm certain Google, Amazon and Facebook will not suffer the fates of Exxon, GE, PetroChina, Royal Dutch Shell, Citigroup, AT&T, Gazprom, BP, Toyota, Bank of America, China Mobile, HSBC, ICBC, and Walmart. Part of the reason Amazon, Google, and Facebook will be permanently successful and are so resilient is because they have market dominance, impassable moats, ubiquity, and are mostly immune to global macro conditions, whereas commodity and banking companies are much more vulnerable to macro conditions. It's much easier to create a steel, drilling, or mining company (look at all the overnight fracking companies that went bust in 2015-2016) than it is to, say, get 1/6 of the world population on your social network (Facebook), every website and phone displaying your ads (Google), or every consumer buying from your store (Amazon) (and also the cloud hosting services). http://greyenlightenment.com/will-the-silicon-valley-tech-fo...
But also, some of those companies you listed pay huge dividends, so when you factor those into the returns, it's not stagnant.
Surely you don't mean actually permanent. So what time scale do you think they will last?
As they say, "in the long run we are all dead."
Yes, sometimes it's important to remind people of the efficient-market hypothesis:
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
You can't beat the market buying stocks using publicly available information, because everybody else knows everything you do. The average seller has no reason to sell you the stock for less than it's worth.
The only way to beat the market without random chance is to know something everyone else doesn't.
Is it 'future value compression,' or just reversion to the mean?
which is what happened to Microsoft, stagnating its stock for ~15 years
Microsoft stock ticker - https://finance.google.com/finance?q=NASDAQ:MSFT
The longest "stagnant" period is directly after the dotcom bust and up to 2007. In that period the stock appreciated by ~10%. Over the following decade it appreciated by ~150%. Not quite the dramatic hockeystick growth curve startup folk like to see, but pretty reasonable for a company already 30 years old at that point. Either way, the quote above has no basis in reality.
December 1999, it hit a high of $59.97.
As recently as November 2016, it was still below that line. Between mid January 2000 and September 2016, it didn't once cross above $59.97 in all of those years in-between.
Go back to as recently as August 2015 and you could find it under $40 still. It was $28 as recently as April 2013.
Even if you didn't want to look up specific date prices for the ticker, a 30 second check on its long-term stock chart will reveal my statement was correct. Slightly more than 15 years of stagnation in fact.
Inflation adjusted, it went down considerably over that time. That's not accounting for their share buybacks and dividends, which if you're lucky might have off-set 15 years of inflation.
Your attempt to claim I was wrong, consists of stating they generated a 10% return over seven years. Even if I were wrong about what I said (fortunately stock quotes are easy to check), that's comical. Go ahead and post what the annual return for those seven years was, under your 10% premise. Then find me an investor that wouldn't consider that stagnation. And that's the idealized scenario, the actual scenario is that the stock proceeded to consistently generate mediocre returns (or worse) between the post dotcom bubble era all the way into 2013.
The point of noting Microsoft's 15 plus years of stagnation in the market, is that their future returns were pulled forward. That's exactly what happened and investors suffered accordingly.
But, yes it has generally under-performed compared to the S&P 500 until recently.
I would suggest that that's a bold statement.