Beware of the winner’s curse

George Kessarios
Chief Economist & Fund Manager

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Analyst Insights, Friday, 4th of September, 2020

In 2010 the number one company in the world was ExxonMobil. Since then, however, it has been one of the worst investments anyone can make and several days ago the company shares will no longer be in the Dow Index.

If you aren’t impressed with ExxonMobil, I have another one for you. Back in 2005, the most valuable company in the world was General Electric. Since then its stock has fallen more than 70%, not counting inflation and the money you would have made if you were invested elsewhere.

As you might have heard, Apple is the most valuable company in the world today, with a market cap of around 2.2 trillion dollars. Please also note that the trailing PE multiple of Apple is around 40.

If we look at the historic multiple of Apple in the chart, for the most of the last decade it ranged between 10-20. Why has Apple’s multiple expanded so much? I don’t have an answer for you. I am also not saying that history will repeat itself and Apple is destined to become another ExxonMobil or GE.

However, with the multiple expansion being the main reason for Apple’s share rise, as is the case for the entire tech sector, it does no harm to be prudent and take some money off the table if you have many of these high flying names.

Because while history does not repeat itself, if often rimes, and in ways we cannot imagine.

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