Hi all, this is just my personal opinion, let's get straight to the point:
Although most people don't realize it, there are monopolies all around us. I'm going to specifically focus on tech companies as they produce the highest returns (as far as I'm aware) and tech is the industry that I'm most familiar with (from real life), but this should also apply to any industry.
When I'm saying "monopoly", I don't refer to the economic definition of" a company that's actively preventing competition", but rather to the more lose definition by Investopedia of "when a company and its product offerings dominate a sector or industry". Also, we'll be focusing only on the US market and US companies. General knowledge: "a market share of greater than 50% has been necessary for courts to find the existence of monopoly power." According to the US Department of Justice, so we'll go off of that 50% rule.
Take Google, for example, a monopoly on search engines. According to an article from Visual Capitalist (published on Business Insider), Google and YouTube handle more than 90% of all internet searches (YouTube is owned by Google). Realistically speaking that's a monopoly.
Look at Amazon and the exact same things happen with e-commerce. According to marketer.com, Amazon has a 38.7% US market share. While this is certainly not above 50%, Amazon is still the most dominant player in online retail in the US by a huge margin.
Apple is without argument a "monopoly" on the US phone and (potentially) computer market.
Microsoft is the outlier here because we're looking at it on a global scale but we can see according to statista.com, that it has a 72.9% Global market share of operating systems, thus it has a global monopoly on it.
So my analysis is not perfect, but you also have to remember that each company is well established, with good historical returns (stock wise, and I'm assuming income wise as well), and they all have a multitude of income sources.
"Alright alright, you've made your point, so now what?":
So let's assume that I believe that long-term these "monopolies" will remain as the dominant players, and because of that and other factors (believing in the company for example), I want to invest in them and only in them (assume GOOG, AMZN, AAPL, MSFT, 25% of the portfolio each).
Often people will say that diversification is an issue with an all tech portfolio, but backtesting for the past 15 years (which isn't that short) shows that tech simply beats the market. That leads me to the second part of the title about Peter Lynch. Lynch has said that "in order to beat the index, you just take the worst performers out". Sometimes this will come with more risk, sometimes not. So my question to you is, ignoring the debate about diversification, is there something else that I'm missing?
Here is a screenshot of the backtesting results, assuming you started with $10,000, rebalanced annually, and reinvested dividends. You can even see that the tech portfolio (Portfolio 2) has presumably less risk due to a higher shrape ratio of the SP500 (Portfolio 1): i.imgur.com/tZl63Ej.png
Thanks for any answers, I'll be happy to take questions as well.
Submitted September 30, 2020 at 06:31PM by DocOxx https://ift.tt/2SqYQ2p
